Is Huntsman a Bargain by the Numbers?

Numbers can lie -- but they're the best first step in determining whether a stock is a buy. In this series, we use some carefully chosen metrics to size up a stock's true value based on the following clues:

• The current price multiples.
• The consistency of past earnings and cash flow.
• How much growth we can expect.

Let's see what those numbers can tell us about how cheap chemicals maker Huntsman (NYSE: HUN) might be.

The current price multiples
First, we'll look at most investors' favorite metric: the P/E ratio. It divides the company's share price by its earnings per share -- the lower, the better.

Then, we'll take things up a notch with a more advanced metric: enterprise value to unlevered free cash flow. This divides the company's enterprise value (basically, its market cap plus its debt, minus its cash) by its unlevered free cash flow (its free cash flow, adding back the interest payments on its debt). Like the P/E, the lower this number is, the better.

Analysts argue about which is more important -- earnings or cash flow. Who cares? A good buy ideally has low multiples on both.

Huntsman's P/E ratio and EV/FCF ratio over the trailing 12 months aren't meaningful because the company has had negative earnings and free cash flow over that period. If we stretch and compare current valuations to the five-year averages for earnings and free cash flow, Huntsman has a P/E ratio of 23.1 and a five-year EV/FCF ratio of 19.6.

A one-year ratio under 10 for both metrics is ideal. For a five-year metric, under 20 is ideal.

Huntsman has a mixed performance in hitting the ideal targets, but let's see how it compares against some competitors and industry mates. 

Source: Capital IQ, a division of Standard & Poor's; NM = not meaningful.

Numerically, we've seen how Huntsman's valuation rates on both an absolute and relative basis. Next, let's examine ...

The consistency of past earnings and cash flow
An ideal company will be consistently strong in its earnings and cash flow generation.

In the past five years, Huntsman's net income margin has ranged from -1.4% to 8.4%. In that same time frame, unlevered free cash flow margin has ranged from -5.3% to 19.1%.

How do those figures compare with those of the company's peers? See for yourself:

Source: Capital IQ, a division of Standard & Poor's; margin ranges are combined.

Additionally, over the last five years, Huntsman has tallied up two years of positive earnings and three years of positive free cash flow.

Next, let's figure out ...

How much growth we can expect
Analysts tend to comically overstate their five-year growth estimates. If you accept them at face value, you will overpay for stocks. But while you should definitely take the analysts' prognostications with a grain of salt, they can still provide a useful starting point when compared to similar numbers from a company's closest rivals.

Let's start by seeing what this company's done over the past five years. In that time period, Huntsman's EPS growth rates aren't meaningful because of its current losses. For the next five years, analysts expect a paltry 3% growth rate -- much lower than the 11% to 15% rates its peers are expected to post.

The bottom line
The pile of numbers we've plowed through has shown us how cheap shares ofHuntsman are trading, how consistent its performance has been, and what kind of growth profile it has -- both on an absolute and a relative basis.

The more consistent a company's performance has been and the more growth we can expect, the more we should be willing to pay. We've gone well beyond looking at a negative P/E ratio.

There aren't any numbers that are especially tantalizing about Huntsman. By the numbers, DuPont, Dow, and 3M are all more intriguing. But the numbers are just a start.

If you find Huntsman's numbers compelling, don't stop. Continue your due diligence process until you're confident that the initial numbers aren't lying to you.

Click here to add Huntsman to My Watchlist to find all of our Foolish analysis on this stock.