Will Archer Daniels (USA Stocks:ADM) decline in March?
 | By Raphi Shpitalnik | Macroaxis Story |
Archer Daniels Midland (NYSE: ADM) has shown a significant level of volatility, with a standard deviation of 3.33, indicating a higher potential for price fluctuation. This, coupled with a negative total risk alpha of -1.73, suggests that the stock may not provide adequate compensation for the risk taken by investors. From a volatility viewpoint, these factors could potentially lead to a downturn in March. However, investors should also consider other market factors and their individual risk tolerance before making investment decisions.
Main Ideas
Archer-Daniels-Midland carries a debt of $10.29 billion, with a debt to equity (D/E) ratio of 0.4. This ratio is acceptable within its current industry classification. The company maintains a current ratio of 1.48, which is standard for the industry and considered normal. Debt can be beneficial for Archer Daniels until it encounters difficulties in paying it off, either with new capital or with free cash flow. Consequently, if the company fails to meet its legal obligations to repay its debt, Archer Daniels' shareholders could potentially lose their entire investment. However, a more common scenario is when companies like Archer-Daniels-Midland issue additional shares at low prices, thereby diluting the value of existing shares. In this context, debt can be an excellent tool for Archer Daniels to invest in growth at high rates of return. When evaluating Archer Daniels' use of debt, it is crucial to consider it in conjunction with cash and equity.Macroaxis uses a strict editorial review process to publish stories and blog posts. Our publishers support our company and may receive a small commission when the partner links or references are utilized. Commissions do not affect the opinions or evaluations of our editorial team. The information our editors and media partners deliver is confidential and licensed for your sole use as a Macroaxis user. We reserve all rights to the content of this article, and therefore copying or distributing this story in whole or in part is strictly prohibited.
Reviewed by Michael Smolkin
Archer Daniels Midland (NYSE: ADM), a prominent player in the Farm Products industry, has been experiencing significant volatility in its stock price. With a Day Median Price of $56.18 and a Day Typical Price of $56.37, the company's stock has shown a tendency to fluctuate. The Valuation Market Value stands at $56.76, slightly above the median and typical prices, indicating a potential overvaluation. However, the Valuation Real Value is estimated at $66.08, suggesting that the stock might be undervalued and could present a buying opportunity. On the other hand, the Analyst Overall Consensus leans towards a 'Sell' recommendation, with 12 holds and 1 strong sell among the 12 estimates. The Analyst Target Price Estimated Value is $71.75, significantly higher than the current price, but the lowest estimated target price is $56, close to the current trading range. The company's stock has a possible downside price of $52.14, indicating a potential risk for investors. The Rate Of Daily Change stands at 1.02, further highlighting the stock's volatility. The Period Momentum Indicator is 1.18, suggesting a positive momentum. However, the Daily Balance Of Power at 0.9594 indicates that sellers have been more active than buyers recently. As we approach the end of the fiscal year in December, investors should closely monitor Archer Daniels Midland's performance and market trends. The company's stock is currently in a precarious position, and a March downturn could be on the horizon. Approximately 30% of stocks exhibit less volatility than Archer Daniels Midland, and over 99% of all equities are projected to yield higher returns in the next 90 days. While some traders who have a high tolerance for risk may be indifferent to the current market volatility, it is prudent to review the risk associated with investing in Archer Daniels Midland. We will concentrate on the risk involved in taking a position in Archer Daniels Midland at this time. Despite the apparent stabilization of Archer Daniels Midland's volatility, it may still influence the stock's value. Based on our estimates, we currently consider Archer Daniels Midland to be undervalued. The true value, according to our calculations, is nearing $66.08 per share.Volatility is a rate at which the price of Archer Daniels or any other equity instrument increases or decreases for a given set of returns. It is measured by calculating the standard deviation of the annualized returns over a given period of time and shows the range to which the price of Archer Daniels may increase or decrease. In other words, similar to Archer's beta indicator, it measures the risk of Archer Daniels and helps estimate the fluctuations that may happen in a short period of time. So if prices of Archer Daniels fluctuate rapidly in a short time span, it is termed to have high volatility, and if it swings slowly in a more extended period, it is understood to have low volatility. Please read more on our technical analysis page.
How important is Archer Daniels's Liquidity
Archer Daniels financial leverage refers to using borrowed capital as a funding source to finance Archer Daniels Midland ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Archer Daniels financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Archer Daniels' owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Archer Daniels' financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between Archer Daniels's total debt and its cash.
Archer Daniels Gross Profit
Archer Daniels Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing Archer Daniels previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show Archer Daniels Gross Profit growth over the last 10 years. Please check Archer Daniels' gross profit and other fundamental indicators for more details.
Archer Daniels Volatility Drivers
Archer Daniels unsystematic risk is unique to Archer Daniels Midland and usually not directly affected by the market or economic environment. An example of unsystematic risk is the possibility of poor earnings or a layoff due to coronavirus. One may mitigate nonsystematic risk by buying different securities in the same industry or by buying in different sectors. For example, if you have a position in Archer Daniels you can also buy Tyson Foods. You can also mitigate this risk by investing in the consumer staples sector as well as in companies having nothing to do with it. This type of risk is also called diversifiable risk and can be understood from analyzing Archer Daniels important indicators over time. Here we run a correlation analysis between relevant fundamental ratios over at least ten year period to find a relationship in the way they react to changes in Archer Daniels income statement and balance sheet. Here are more details about Archer volatility.Click cells to compare fundamentals
Is Archer Daniels valued appropriately by the market?
The firm reported the last year's revenue of 101.85 B. Total Income to common stockholders was 4.37 B with profit before taxes, overhead, and interest of 7.57 B. "As the saying goes, 'the market hates uncertainty', and Archer Daniels Midland (NYSE: ADM) is currently swimming in it. The stock's high standard deviation of 3.33 indicates a high level of volatility, which could be a sign of a potential downturn in March. Coupled with a negative information ratio of -0.16, it suggests that the stock's returns have not adequately compensated for the risk taken by investors. Furthermore, the company's skewness of -5.85 indicates a significant tilt towards negative returns. Despite a reasonable Price to Earnings ratio of 13.30X and a healthy current ratio of 1.51X, the high volatility and negative skewness could potentially outweigh these positive factors. Investors should tread carefully with Archer Daniels Midland in the coming month, as the market's dislike for uncertainty could lead to a downturn."
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