3M (MMM -0.66%) is the kind of stock that I occasionally look at, conclude that the valuation is way too pricey for my tastes, and move on from. But the stock has really taken a beating over the past 18 months. From its 2021 peak, shares are down more than 40%. From the all-time high in early 2018, shares have tumbled about 55%.
A lackluster fourth-quarter earnings report on Tuesday sent the stock even lower. The company offered a weak outlook for 2023, saying it expects macroeconomic challenges to persist. The company expects adjusted revenue to decline by between 2% and 6%, and it sees adjusted earnings per share (EPS) coming in between $8.50 and $9. In 2022, the company reported adjusted EPS of $9.88 on a comparable basis.
3M is reducing its global manufacturing workforce by 2,500 positions to help cope with the weak demand environment. Sinking demand for disposable respirators is one reason for the weak outlook, but it's not the only reason.
Starting to look attractive
3M is a complicated company that does a lot of different things. This year will be tough, but eventually the headwinds the company is facing will fade. 3M stock appears relatively inexpensive based on its earnings guidance. Even at the low end of the outlook range, the stock trades for just over 13 times earnings. However, there's always the chance that the company performs worse than expected, or that it takes multiple years for earnings to start to recover.
Investors can look at some other valuation metrics to get a sense of whether 3M is an attractive stock. Price-to-book value is useful here, since 3M is a manufacturer. One thing to note: 3M has a lot of intangible assets on its balance sheet, and it's always possible that some of this will be written off during a downturn. In fact, the company wrote off $271 million of goodwill during the fourth quarter. So while the price-to-book value ratio is useful, it's far from perfect.
MMM Price to Book Value data by YCharts
There's no "correct" price-to-book value ratio for 3M, but this ratio is just about as low as it's been over the past couple decades. It dipped a bit lower during the global financial crisis, but it's not far off from that low right now.
The price-to-sales ratio is also useful to look at. Again, 3M is about as cheap as it's been in decades.
MMM PS Ratio data by YCharts
Keep an eye on 3M stock
3M is going to have a rough year, and possibly a rough multiyear period. The balance sheet doesn't look too bad -- nearly $4 billion in cash and securities is paired with around $16 billion in debt. 3M doesn't seem like a fragile company to me, but its results are certainly going to disappoint for the foreseeable future as it battles headwinds beyond its control.
I'm putting 3M on my watch list, and I suggest you do the same. The stock trades right around 2013 levels, and this is the first time I can remember feeling like the valuation makes sense. More bad news may be coming, and the stock could very well tumble further. But for long-term investors, 3M is a stock to consider in the coming months.
