Should you buy ZIM stock?
- 7 months ago
ZIM stock analysis. Zim Integrated Shipping Services.
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In 2022, the operating profit of ZIM was $6.1 billion and net income was 4.6 billion, which is significantly higher than today’s market cap.
The company also has $3.2 billion in cash and investments and $2.5 billion in lease liabilities.
So looking purely at the financials and the balance sheet ZIM looks undervalued. The business is valued at half last years earnings and incredibly, has more cash on its balance sheet than its current market cap.
However, it’s worth mentioning the company pays interest on 2.7 billion of lease liabilities.
And looking at the P/E ratio is meaningless in this case because the coming years are going to be very challenging for ZIM.
The high freight rates that we saw during lockdowns are a thing of the past and demand is being crushed by inflation. So the most likely outcome is a reduction in freight rates to pre-pandemic levels.
Shipping is intensely competitive and low margin so ZIM will see significant pressure to its bottom line. In fact, based on analyst estimates, earnings per share will turn negative in 2023, and stay there.
In other words, ZIM has several years of losses ahead and that’s going to eat up cash from the balance sheet.
Moreover, management typically pays 30-50% of net income in the form of dividends but if net income turns negative then investors can expect the dividend to be significantly reduced.
And a reduced dividend is going to frustrate investors and put further pressure on the stock.
ZIM has cash to play with and perhaps it could scale down part of its business or move into something higher margin. But these types of stocks are notoriously boom or bust and depend very much on macro conditions. And it’s worth nothing that ZIM has a high short interest of over 20%.
Overall, there may be some reasons to buy ZIM stock but shipping stocks are best left to industry experts and I see too many red flags to warrant an investment. I therefore give this stock a neutral rating. But these are my personal opinions not financial advice.
#stocks #investing #zimstock #stockstowatch
Visit our Substack for more: https://www.overlookedalpha.com
In 2022, the operating profit of ZIM was $6.1 billion and net income was 4.6 billion, which is significantly higher than today’s market cap.
The company also has $3.2 billion in cash and investments and $2.5 billion in lease liabilities.
So looking purely at the financials and the balance sheet ZIM looks undervalued. The business is valued at half last years earnings and incredibly, has more cash on its balance sheet than its current market cap.
However, it’s worth mentioning the company pays interest on 2.7 billion of lease liabilities.
And looking at the P/E ratio is meaningless in this case because the coming years are going to be very challenging for ZIM.
The high freight rates that we saw during lockdowns are a thing of the past and demand is being crushed by inflation. So the most likely outcome is a reduction in freight rates to pre-pandemic levels.
Shipping is intensely competitive and low margin so ZIM will see significant pressure to its bottom line. In fact, based on analyst estimates, earnings per share will turn negative in 2023, and stay there.
In other words, ZIM has several years of losses ahead and that’s going to eat up cash from the balance sheet.
Moreover, management typically pays 30-50% of net income in the form of dividends but if net income turns negative then investors can expect the dividend to be significantly reduced.
And a reduced dividend is going to frustrate investors and put further pressure on the stock.
ZIM has cash to play with and perhaps it could scale down part of its business or move into something higher margin. But these types of stocks are notoriously boom or bust and depend very much on macro conditions. And it’s worth nothing that ZIM has a high short interest of over 20%.
Overall, there may be some reasons to buy ZIM stock but shipping stocks are best left to industry experts and I see too many red flags to warrant an investment. I therefore give this stock a neutral rating. But these are my personal opinions not financial advice.
#stocks #investing #zimstock #stockstowatch