Air Liquide (AI:PAR) Stock: Analysis

Air Liquide shares are traded on the Paris Stock Exchange under the ticker "AI". That's almost ten years already, I was telling you about this French giant, world leader in gases for industry, health and the environment. The company's origins date back to 1902 and it now has nearly 65,000 employees. Since my last analysis, the share price has more than doubled, outperforming its benchmark index, the CAC 40, which is not surprising for a stock of this quality. Let's see what this means in terms of its current valuation.

Air Liquide stock valuation

The sharp rise in the share price in recent years has made the stock significantly more expensive. When I last looked at it, the price-to-earnings ratio was 18.75, which was attractive for a company of this caliber. Today, the share price Air Liquide amounts to:

• 29 times current recurring earnings
• 32.44 times average recurring earnings
• 17.41 times tangible assets
• 3.81 times book value
• 3.45 times sales
• 27.42 times current free cash flow
• 33.14 times the average free cash flow

All this is expensive. Very expensive. Let us recall that a price/sales ratio greater than three is rather synonym for sale than buying... If we compare the financial ratios to the enterprise value, which takes into account the capital structure, and therefore the debt, rather than its capitalization (via the share price), it does not improve, quite the contrary:

• Current EV/FCF: 32.16
• Average EV/FCF: 38.97
• EBIT / EV: 4.41%
• EBITDA / EV: 6.99%

Air Liquide stock performance

No miracle in terms of dividends, the increase in the price of Air Liquide shares inevitably translates into the yield of the stock, which is now only 1,84%. This is not much and is due to the fact that the dividend, with an average annual growth of 5% over the last five years, is not increasing as quickly as the share price. If the dividend is not increasing as quickly, it is because it is itself dependent on the growth of profits, which are also increasing at an average annual rate of 5%.

The good news is that the French company does not excessively use its results to artificially inflate the money it pays to its shareholders. On the contrary, it even tends to become more cautious. The dividend thus represents:

• 53.31% current profits
• 59.76% average profits
• 50.26% of current free cash flow
• 60.91% of average free cash flow

So there is no need to worry about the sustainability of the dividend, which is hardly surprising from Air Liquide, which has been pursuing a responsible policy towards its shareholders for decades. This is certainly one of its greatest qualities.

Results & balance sheet

Just like the dividend, profits and liquidity are growing over the long term, which proves the solidity of the French giant's business model. However, this is struggling to translate into asset values, which tend to stagnate or even decline slightly.

Cash reserves are low, with a current ratio of only 0.87 and a quick ratio of 0.67. However, I would not be overly concerned about this situation. This is a phenomenon that is currently quite common among large companies that maintain a low cash threshold, due to low interest rates and can very easily obtain short-term loans from their banks if necessary.

Profitability & profitability

Financial institutions are all the more inclined to lend to Air Liquide since the latter is a very profitable and profitable company. The gross margin in fact amounts to a nice 64.9% (up), while the free cash flow margin climbs to 12.58% and the net margin to 11.89%. The ROA is at an appreciable 5.8% (up), the CFROA to 12.4% and the ROE to 13.13%.

Debt

As we could see, the situation is a little less rosy on the debt side. The long-term debt ratio compared to assets has climbed to 26.52% (although slightly down). The company would thus need more than six years to repay all of its debt, which represents 0.73 times its equity, by using its free cash flow, which is nevertheless abundant.

Return for the shareholder

It should be noted that Air Liquide has, however, gradually reduced its debt over the last five years. The repayment of net debt thus represents an appreciable return for the shareholder of 2.3% on average over this period. The number of shares outstanding having remained almost stable during this period, this represents, dividend included, an average total return for the shareholder of 3.92% over the last five years. However, it is not certain that the company will be able to continue to be as generous towards its owners in the future. Indeed, it had to use nearly 130% of its free cash flow to pay its dividend and repay its debt.

Franchise?

Air Liquide has some franchise characteristics, but it is still not quite a Buffett stock. Of course, in addition to its dominant position, its profitability and its profitability, it displays relatively low overheads. However, we have seen that the debt is a little too high. It should also be noted that capital expenditures are relatively high compared to profits (110% over the last five years on average).

Risks of Air Liquide stock

Air Liquide shares are considered a good investment by the general public. This reputation comes from the company's history and its responsible dividend policy. The stock's volatility is also quite affordable (17%), as is its beta (1.03).

Piotroski's score is correct, at six points out of nine. Altman's is of the same caliber, at 2.97, which places him in the gray zone, but just below the green zone. Air Liquide is therefore not a company that displays rock-solid solidity, but it is not ready to go bankrupt any time soon either. But that was already suspected.

Conclusion

Air Liquide is a very nice company with very interesting profitability and returns. It has also shown prudent generosity towards its shareholders for many years. However, the stock is currently really overvalued, like most of what is on the market. The price/sales ratio of 3.45 is clearly a sell signal.

A large number of institutional investors are present among Air Liquide's shareholders. These include Vanguard, Norges Bank, BlackRock, Amundi, BNP Paribas, Lyxor and T. Rowe. This suggests big moves if they were to start getting rid of them. It is therefore better to remain cautious.