Schlumberger is undervalued and a solid investment. I'm going to jump into why I believe this to be the case. We are going to look at SLB's current valuation, recent earnings, and 7 key financial ratios. This is a fairly long analysis but if you're thinking of investing in SLB then you should have a decent understanding of why you decided to make this investment. Anyway, enough with the intro, let's jump into the analysis.
If you're not familiar with SLB then here is a quick summary, feel free to jump past this part.
“Schlumberger Limited provides technology for the energy industry worldwide. The company operates through four divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems. It offers software, information management, and IT infrastructure services; consulting services for reservoir characterization, field development planning, and production enhancement; petro technical data services and training solutions; reservoir interpretation and data processing services; asset performance solutions; open and cased-hole services; exploration and production pressure and flow-rate measurement services; pressure pumping, well stimulation, and coiled tubing equipment for downhole mechanical well intervention, reservoir monitoring, and downhole data acquisition; and integrated production systems. The company also provides mud logging and engineering support services; drilling equipment and services for shipyards, drilling contractors, energy companies, and rental tool companies; land drilling rigs and related services; drilling tools; well cementing products and services; and well planning and drilling, engineering, supervision, logistics, procurement, contracting, and drilling rig management services, as well as supplies engineered drilling fluid systems; and designs, manufactures, and markets roller cone and fixed cutter drill bits. In addition, it offers well completion services and equipment; artificial lift production equipment and optimization services; valves; process systems; and integrated subsea production systems comprising wellheads, subsea trees, manifolds and flowline connectors, control systems, connectors, and services, as well as designs and manufactures onshore and offshore platform wellhead systems and processing solutions. The company was formerly known as Socie´te´ de Prospection E´lectrique. Schlumberger Limited was founded in 1926 and is based in Houston, Texas.”
Understanding the valuation of a stock is a useful check to see if the investment fundamentals are sound. I pulled the valuation and stock rating for a quick view to see if SLB is considered undervalued or overvalued. Analysts of SLB have given an overall rating of 5, on a rating scale between 1 and 5, with 1 being the worst and 5 being the best. This overall rating consists of 3 different ratings, PE, ROE and DCF which I'll get into below.
PE Rating: Currently, analysts have given SLB a PE rating of 5. This is the highest ranking and implies that the SLB stock is currently undervalued. The PE rating factors in the trailing, current, and future PE Ratio of the SLB stock. In the case of SLB, analysts think that SLB is undervalued given their P/E ratios, relative to the average P/E ratio of their peers.
ROE Rating: Currently, SLB has been given an ROE rating of 3 by analysts. This is the highest score one can achieve via an ROE rating. This indicates that SLB's ROE is not only healthy, but better than their peers. SLB's ROE score of 3 implies that they are currently profitable and are generating these profits in an efficient manner. A high rating such as SLB's could also indicate that their management team is better at managing inventory, cash flows, and business operations better than the management teams of SLB's peers.
DCF Rating: We have saved the best (and most influential) rating for last. SLB has been given a score of 5 based on the quality of their DCF model (and projections). The DCF model is very commonly used by investors to value securities and is the de facto measurement of a stocks value. As a result of this, a high level of importance is placed on the company's DCF models. With that being said, SLB's score of 5 is very good, implying the outlook for SLB is very positive, and their stock is currently undervalued.
Based on these metrics we can see that SLB seems to be undervalued and a solid investment. Considering these core metrics look good, I would be likely to take a position in SLB. That being said, I want to look at some other metrics and factors.
There are 7 main financial ratios that we are going to look at today. These ratios can help us to get a general idea of the financial health of the SLB stock before we choose to enter into (or add to) a position. These ratios can help us to understand the current state of Schlumberger Limited's business, as well as what their future might look like.
Overall, I think that the SLB stock is undervalued. This is due to SLB overall stock grade being ranked a 5, track record of beating earnings. Looking at the macro view of oil and gas still being a key aspect of the global economy, and SLB being the leader in the oil and gas service space, I think we will continue to see Schlumberger move in a positive direction.
Thanks for taking the time to read my analysis, please follow me for the latest investment insights and leave a comment if you have any questions or disagree with my thoughts - always open to a good discussion!