Image Source: PixabayAs part of an ongoing series, we will take a closer look at one of the stocks from our stock screeners and attempt to discern if it is an undervalued gem. The stock this week is:
Coca-Cola Femsa SAB de CV (KOF)
Coca-Cola Femsa, a subsidiary of Femsa, is the largest franchise bottler of wide-moat Coca-Cola in volume terms. The company purchases beverage concentrates and syrup from Coca-Cola, which it then processes and packages for distribution through modern trade, traditional trade, and the on-premises channel.Mexico and Brazil make up 80% of total sales, with the rest from other Central and South American countries, including Panama, Guatemala, Uruguay, and Argentina. Parent Femsa and Coca-Cola hold 47% and 28% of economic interests in Coca-Cola Femsa, through nonpublicly traded A and D shares, respectively, while controlling 56% and 33% of the respective voting power.Provided below is a quick look at the share price history over the past twelve months, which shows that the price has moved up 198.17%.
Image Source: Google FinanceOne of the metrics we use in our screens is IV/P (Intrinsic Value to Price). This metric can tell you if a stock is a good deal or not based on how much value you’re getting for the price you pay. Here’s how it works:
The calculation: It adds up the stock’s ability to make money (earning power), grow (incremental growth), and pay back investors (shareholder yield). This gives you an idea of what the stock is really worth, called its implied value.
The meaning of IV/P: If IV/P is greater than 1, it means you’re getting more value than you’re paying for. For example, for every $1 you invest, you’re getting more than $1 of value. That’s a good deal. If IV/P is less than 1, it means you’re getting less value than you’re paying for. For example, for every $1 you invest, you’re getting less than $1 of value. That might not be a great deal.
What it’s used for: It’s a quick way to spot undervalued stocks (good deals). If IV/P is very low, like 0.6 (you’re only getting 60 cents of value for $1), it’s likely overpriced.
Important note: This is just an estimate. Other factors, like market trends or company issues, can affect how accurate this is.
So, IV/P can help investors find stocks that are “cheap” based on how much value they give back. Higher is usually better.We have an IV/P of 2.60 for Coca-Cola Femsa SAB de CV, which means the stock’s implied value is calculated to be 2.60 times greater than its recent price. In simpler terms:
For every $1 you invest, you’re potentially getting $2.60 of value.
This is an extremely high ratio, which might suggest the stock is deeply undervalued or that there’s some mispricing or unusual calculation in the data.
Possible reasons for this undervaluation include the following:
Emerging market risks: With the bulk of its operations in Latin America, geopolitical instability, inflationary pressures, and varying economic conditions can lead to lower investor confidence in regionally exposed companies.
Global interest rate environment: Rising global interest rates may increase borrowing costs and reduce the relative attractiveness of equity investments, particularly in emerging markets.
Commodities and inflation impact: Higher costs of raw materials (e.g., sugar, aluminum for cans) due to global inflationary trends could impact margins, even if temporary, leading to a cautious valuation.
Slower global growth: Concerns about slowing global economic growth may make investors hesitant to invest in beverage companies, despite their relatively defensive nature.
Latin American economic sentiment: Negative perceptions about the economic and political outlook in countries like Brazil and Mexico might contribute to lower valuations for regionally focused companies.
FX and devaluation risks: The strengthening of the U.S. dollar against Latin American currencies can lead to lower dollar-denominated earnings, making the stock less attractive to international investors.
Despite all of the above, the company has a FCF yield of 24.44%, a dividend yield of 17.80%, a five-year ROA of 14%, and an ‘Acquirer’s Multiple’ of 2.80.More By This Author:The Home Depot, Inc. (HD) DCF Valuation: Is The Stock Undervalued?GS: One Stock Superinvestors Are Dumping: Is It Time To Sell? COP: The Undervalued Stock That Superinvestors Are Loading Up On
