Element Solutions

Element Solutions Inc receives a 3-star quantitative star rating, indicating our belief that this share class is a balanced choice, but prudent investors should consider looking elsewhere. The stock currently trades at a minor 2% discount to our quantitative fair value estimate of $38.31 per share; however, some caution is warranted due to this estimate's medium uncertainty rating.

The company's solid growth increases our valuation estimate. Consistent revenue and earnings growth indicates a company's potential for increased market share and profitability. Reflecting the firm's growth is its revenue 3-year growth of 16.1%, which falls in the top 30% compared with global peers. Robust trailing three-year revenue growth portends a favorable future trajectory, which contributes to our view that shares are cheap.

Alternatively, the firm's valuation metrics are potentially concerning. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. The firm's enterprise value to market value ratio of 1.2, for example, ranks in the top 40% compared with peers globally. The market value of equity is low relative to the business' enterprise value, suggesting the company could be buried in debt if anything goes wrong. Despite our favorable price/fair value ratio, this characteristic is a negative attribute.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has outperformed the broader universe over the past year. While we believe the stock is undervalued, this outperformance had a negative impact on our valuation estimate.

The company's narrow quantitative moat rating indicates it could outearn its cost of capital and maintain robust margins for 10 years or longer. In addition, the company's moderate financial health score is decent and doesn't seriously concern us with regard to financial distress.