Misleading Financial Ratios Hide Value in This Stock

This stock stands out, with its Very Attractive rating, from the pack in the Industrials sector, which get our Neutral rating per our 1Q18 Sector Ratings. Despite years of consistent profit growth, margin improvement, and strong competitive advantages which can sustain profit growth, this firm’s stock remains undervalued.

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4 Comments

  • Greg

    January 11, 2018

    I was wondering if the deferred tax accounts impact NOPAT because of the new tax law? Not only this company, but, in general. An article on how ADT account changes may impact stock prices would be appreciated.

  • Sohrab Alborzian

    January 13, 2018

    I don’t understand why a company would mislead into thinking its business is less valuable…the only thing I could think of was so that people don’t buy the shares on the cheap and later on they make the balance sheets more attractive so they buy them expensive? Please shed some light onto this

  • Sam McBride

    January 16, 2018

    Companies can have many different motivations for writing-down assets. Sometimes it’s simply because they are required to under accounting rules. Other times, write-downs can slim down the balance sheet to make ROIC and ROE look more appealing in the future. Whatever Graco’s reasoning behind this write-down, the end-result is that GAAP earnings significantly understate its profitability for the current period.

  • Sam McBride

    January 16, 2018

    The tax law has not impacted GGG’s filings so far. If the tax law does lead to a change in the value of deferred tax assets, it would not impact NOPAT because we would exclude that one-time item. As more data becomes available on how filings are impacted by the new tax law we may look into writing an article on this subject.

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