We can compare Sigma-Aldrich to other specialty chemicals companies, including PPG Industries, Inc. (NYSE:PPG), LyondellBasell Industries NV (NYSE:LYB), Westlake Chemical Corporation (NYSE:WLK), and The Valspar Corporation (NYSE:VAL). In terms of trailing earnings multiples, Sigma-Aldrich is actually priced about even with most of these peers: with the exception of LyondellBasell, all carry trailing P/Es between 19 and 23. None of the three remaining companies seem to be experiencing particularly high growth rates either; Westlake and Valspar actually had their sales decline in their recent quarterly report compared to the same period in the previous fiscal year, while PPG grew both its top and bottom lines at modest rates similarly to Sigma-Aldrich. However, analyst consensus is more bullish on all three and so Sigma-Aldrich possesses the highest forward earnings multiple. We’d note that Westlake and PPG each have about 20% of their outstanding shares held short. That leaves Lyondellbasell, which is valued at 12 times its earnings for last year. Even with modest recorded growth, the stock is up 41% since a year ago. Lyondellbasell is also a considerably larger company in terms of market capitalization.
It seems to us that if an investor is looking for a stock in the chemicals industry, Lyondellbasell should be their first target for future research given its low valuation relative to other companies including those which have been reporting lower sales. We simply aren’t comfortable with Sigma-Aldrich’s valuation relative to its historical earnings, and aren’t ready to accept that its decent fourth quarter- which, even if maintained for a few years, might not justify the current stock price in any case- represents some sort of new normal for the company.
Disclosure: I own no shares of any stocks mentioned in this article.