Is Now the Time to Buy DuPont Stock?

This article was updated on Oct 24, 2014.

DuPont's (NYSE: DD  )  stock price has more than doubled over the past five years. That's well ahead of the market's gains over that same time frame, as we can see in the following chart.

DD Chart

DD data by YCharts

However, the reason DuPont's stock has beaten the market isn't so much due to the company's performance as it is to the company's future potential. Through the first half of 2014 DuPont's sales and its earnings are both down from 2013 as we see in the following slide. 

Source: DuPont Investor Presentation. 

However, DuPont has been enhancing its portfolio to pursue growth opportunities that create higher value. That transition has seen the company add a number of new business lines and products. Through this transition DuPont has become more focused on science and innovation, which yields higher margins, while exiting a lower-margin commodity business like performance coatings.

This is part of a transition that has the company maximizing its business portfolio around its purpose to be a science company. DuPont's strategy is to build and leverage its science lead in three specific focus areas: agriculture and nutrition, bio-based industrials, and advanced materials. Over the past four years these new segments have delivered over $10 billion in new product revenue for the company. That focus on science and development is expected to yield strong long-term growth in the years ahead, as noted on the following slide:

Source: DuPont Investor Presentation 

DuPont has set long-term targets to grow its sales by 7% each year while its operating earnings are expected to grow by a 12% annual clip. That's pretty solid growth and shows how good the company is at turning its innovation into returns.

That being said, if there is a problem with DuPont, it's with the company's stock price. With a price-to-earnings ratio of around 22, it's hard to call the company a value stock. Further, investors are paying nearly twice the earnings growth rate for the company as measured by its PEG ratio of 2.02. That's a pretty high-end multiple, especially for a company like DuPont. When we compare it to some of its peers we see that DuPont is trading at a real premium. Dow Chemical (NYSE: DOW  ) , for example, is cheaper with a price-to-earnings ratio of 16.5 times and a PEG ratio of 1.75 times. Even Monsanto (NYSE: MON  ) sells for a cheaper valuation. Its price to earnings ratio is 19 while its PEG ratio is 1.53. So, we can get the same exposure to agriculture, in this case, at a much cheaper valuation than what's currently offered by DuPont's stock.     

DuPont has a solid foundation as its science-based approach is expected to deliver strong revenue and earnings growth over the next few years. However, I just don't see that being a compelling enough reason to buy the stock at today's price. It is just too high a premium, and any bump in the road could cause DuPont's stock to reverse course. 

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3146881, ~/Articles/ArticleHandler.aspx, 8/28/2015 8:42:29 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Matt DiLallo

Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries:

Today's Market

updated Moments ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:03 PM
DD $51.84 Down -0.18 -0.35%
E.I. du Pont de Ne… CAPS Rating: *****
DOW $44.00 Up +0.40 +0.92%
The Dow Chemical C… CAPS Rating: ****
MON $98.38 Down -0.02 -0.02%
Monsanto CAPS Rating: ***