Acergy S.A. (ACGY) Undervalued & Growing Well!

Acergy S.A. (ACGY) Undervalued & Growing Well!

Acergy S.A. (NasdaqGS: ACGY)

Within the oilfield services group, we are positive on London-based Acergy S.A. (NasdaqGS: ACGY – News). With a healthy backlog, significant cash balances, and no near-term refinancing requirements, Acergy should weather the challenging business environment. Our favorable recommendation on Acergy ADRs also reflects the company’s strong leverage to the still very favorable outlook for deepwater oilfield activities and the quality of its client base, which mostly includes well-capitalized oil majors or national oil companies.

How well is the Company growing?

With every business we want to know if they are growing. Why would we put money into a business that is not growing? The best way to understand if a company is growing is to compare it to the industry as a whole. Since ACGY is part of the OIL Field Service Group, that is what we will compare it to. Over the last
year, the industry as a whole shrunk in sales by (2.90%) ACGY faired much better, growing (14.50%). This is a huge difference! They also lead the way in Net Income. Overall they income grew by (20.10%) while the industry fell off the cliff to the tune of a negative (39.00%). In the last year they have really come around to lead the industry.

Our Conclusion- this company has grown well until recently! We give it an A

How valuable is the Stock?

How does one know how valuable a stock is? Cash is King! If this is the case, ACGY has what it takes to blossom as an investment. When we think about value we have to think about the potential growth. How much potential? Something called the price to sales ratio gives us the best indicator of this. The more money a company has coming in through sales compared to how much working capital it has speaks volume of its health. The lower the price/sales ratio, the healthier it is. If we compare ACGY to its industry, we find a comfortably lower ratio with the possibility to sprout and grow. The industry comes in with a 2.36 ratio while ACGY stands at 1.30. If we take seriously “Cash is King,” then the second most important thing we need to consider is how much money is flowing through this company as compared to its price. This is called the price to cash flow ratio. The closer the ratio gets to that magical “100” the less capability a company has. “100” means it can just pay its bills because the value of the company is equal to the amount of money coming in and no more. The industry stands at 12.90 while FUL shows off just over one half of that, coming in at 7.50. We have an abundance of upside potential compared to the industry as a whole. Since we compare companies to their industry to define their health there are two more ratios that we consider. Each ratio is defined by how low it is. The lower the better value the company has. The price to earnings ratio (P/E Ratio) and the price to book ratio also come in lower than the industry as a whole.

Our conclusion- this is still highly under valued! We give it an “A”