How’s Albemarle’s Valuation Compared to Its Peers?



Albemarle’s forward price-to-earnings multiple

Forward PE (price-to-earnings) is a valuation method that considers a company’s future earnings for calculation. As of December 14, 2016, Albemarle (ALB) was trading at a one-year forward PE multiple of 22.7x compared to peer W.R. Grace (GRA) that’s trading at a one-year forward PE multiple of 20.0x.

The forward price-to-earnings ratio tells how much investors are paying per dollar of expected earnings in the next 12 months. Using a PE ratio, you can compare two or more companies that operate in the same industry and decide which stock is overvalued or undervalued.

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Albemarle trades at a premium

Albemarle is trading at a premium compared to its peer W.R. Grace. In its 3Q16 earnings report, Albemarle said it expects growth to continue in its Lithium and Refining Solutions segments. The company has also managed to cut its interest costs by paying its debt early.

Based on management’s guidance, Albemarle expects rises in revenue and EPS (earnings per share) for the rest of the year. Albemarle has a better EBITDA (earnings before interest, tax, depreciation, and amortization) margin than its peers. With the kind of dividend increase it has seen over the years, it’s quite natural that investors are attracted to this kind of stock.

If you’re looking for exposure to Albemarle through ETFs, you can invest in the Guggenheim S&P 500 Equal Weight Materials ETF (RTM). RTM has invested 4.2% of its portfolio in Albemarle as of December 14, 2016. The top holdings of the fund include Eastman Chemical (EMN) and FMC (FMC), with weights of 4.5% and 4.2%, respectively.


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