Last update on 2024-06-05

Essilorluxottica (ESL.DE) - Piotroski F-Score Analysis for Year 2023 (Final Score: 8/9)

Analyze Essilorluxottica (ESL.DE) using the Piotroski F-Score for 2023, yielding a strong 8/9, highlighting profitability, liquidity, and efficient asset use.

Short Analysis - Piotroski Score: 8

We're running Essilorluxottica (ESL.DE) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

EssilorLuxottica scored 8 out of 9 on the Piotroski F-Score, indicating a strong financial position. The score reflects positive net income, positive cash flow from operations, growing return on assets (ROA), and an operating cash flow higher than net income. The company also showed a slightly improving current ratio, no dilution of shares, and increased asset turnover—showing improved operational efficiency. However, there was an increase in leverage and a decrease in gross margin, highlighting areas for improvement.

Insights for Value Investors Seeking Stable Income

EssilorLuxottica appears to be a solid investment based on its high Piotroski F-Score of 8. The company demonstrates good profitability, liquidity, and operating efficiency. Its strong financial fundamentals, despite some minor setbacks like increased leverage and slightly declining gross margin, make it a reliable stock to consider adding to your portfolio.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Essilorluxottica (ESL.DE)

Company has a positive net income?

Net income indicates a company's profitability. A positive net income denotes earnings after all expenses are deducted.

For EssilorLuxottica (ESL.DE), the net income for 2023 stands at €2,289,000,000, illustrating profitability. Historically, the company has consistently reported positive net income over the past 20 years, except for a decline in 2020 due to the pandemic effects. This demonstrates resilience and effective management, contributing positively to the Piotroski score. Thus, EssilorLuxottica gets 1 point for positive net income.

Company has a positive cash flow?

Positive cash flow from operations (CFO) indicates a company’s ability to generate sufficient revenue to cover its operating expenses, which is crucial for long-term sustainability.

For Essilorluxottica (ESL.DE), the cash flow from operations (CFO) for 2023 stands at €4,861 million, which is positive. This is a healthy indicator as it demonstrates the firm’s ability to generate cash from its core operational activities, adding stability and reducing financial risk. With positive CFOs consistently every year for the past two decades, reaching as high as €4,861 million in 2023 compared to €392 million in 2003, Essilorluxotta showcases an impressive growth in operational efficiency. Specifically, the continuous increase in CFO since 2003, with notable jumps in periods such as from 2017 (€1,233 million) to 2018 (€1,881 million) and recently from 2021 (€4,545 million) to 2022 (€4,783 million) further supports their integral growth, aligning with a robust and sustainable business model. Therefore, for 2023, Essilorluxottica would score 1 point under the Piotroski criterion of positive CFO.

Return on Assets (ROA) are growing?

Return on Assets (ROA) measures the profitability of a company in relation to its total assets. An increasing ROA indicates improving efficiency in generating profit from assets.

Essilorluxottica (ESL.DE) saw an increase in its Return on Assets (ROA) from 0.0359 in 2022 to 0.0378 in 2023. This upward trend is positive, suggesting that the company has improved its efficiency in generating profit from its assets. Despite this upward trend, it is noteworthy that Essilorluxottica's ROA is significantly lower than the industry median of 0.5549 for 2023, signaling that while the company is improving, it still lags behind its peers in terms of asset utilization. Historically, the company's operating cash flow has shown a robust growth from €392.17 million in 2003 to €4.861 billion in 2023, bolstering its profitability and liquidity positions. Thus, the increase in ROA adds 1 point to the Piotroski score.

Operating Cashflow are higher than Netincome?

This criterion examines whether a company's operating cash flow exceeds its net income. It's important because it suggests that the company's earnings are backed by actual cash, not accounting adjustments.

For the year 2023, EssilorLuxottica reported an operating cash flow of €4,861 million and a net income of €2,289 million. Since the operating cash flow is significantly higher than the net income, this criterion receives a point. This is a positive sign, indicating that the company's earnings are supported by substantial cash flow, reducing the potential impact of accruals. Over the last 20 years, a consistent pattern can be observed where operating cash flow often exceeds net income, strengthening the reliability of profits and enhancing investor confidence.

Liquidity of Essilorluxottica (ESL.DE)

Leverage is declining?

Change in leverage evaluates how much more or less a company is relying on debt to finance its operations. Lower leverage is often seen as less risky.

For Essilorluxottica (ESL.DE), the leverage ratio increased from 0.148 in 2023 to 0.1683 in 2022, indicating that the company's reliance on debt has grown. Over the past 20 years, the leverage has fluctuated but has shown a general trend of managing leverage conservatively, with some peaks and troughs. This upward trend in leverage in 2023 could be viewed as a negative signal as it implies increased financial risk and lower financial flexibility. Therefore, according to the Piotroski criterion for change in leverage, Essilorluxottica would receive a score of 0 for this criterion.

Current Ratio is growing?

The Current Ratio is a critical measure of a company's ability to pay its short-term liabilities with its short-term assets.

In 2023, EssilorLuxottica's Current Ratio increased to 0.9979 from 0.9721 in 2022. This upward trend, although slight, is a positive indicator, suggesting a marginal improvement in liquidity. However, it's important to note that the ratio is still below 1, indicating potential liquidity challenges. Historically, EssilorLuxottica's Current Ratio was much higher, but it has decreased significantly over the years. Compared to the industry median of 2.3418 in 2023, EssilorLuxottica's ratio lags behind, indicating weaker liquidity relative to its peers.

Number of shares not diluted?

Shares Outstanding represents the total number of shares issued by a company. A decrease in shares can be a sign of share buybacks.

Upon comparing the Outstanding Shares of 451,743,897 in 2022 with 448,066,944 in 2023, we observe a decrease in shares. This downward trend adds 1 point to the Piotroski score. This reduction in shares can be a positive signal for investors as it often indicates share buybacks, which typically enhances shareholder value by reducing the number of outstanding shares. Reviewing historical data, we observe fluctuations: dramatic increases in 2018 as the shares jumped from 221,297,950 to 266,246,307 and in 2019 with another leap to 434,084,752, primarily due to merger and acquisition activities. This recent decrease in 2023 reverts the trend, showcasing prudent capital allocation focusing on returning value to shareholders. Therefore, the trend is considered good.

Operating of Essilorluxottica (ESL.DE)

Cross Margin is growing?

Gross margin measures the percentage of revenue that exceeds the cost of goods sold. It indicates the financial health of a company and its ability to manage production costs.

Comparing the gross margins of EssilorLuxottica for 2022 (0.6362) and 2023 (0.6319), there is a slight decrease. Thus, EssilorLuxottica's gross margin declined in 2023. Over the past 20 years, the gross margin has shown variability, with lows of around 0.5541 in 2011 and peaks of around 0.6362 in 2022. Despite the decreasing trend from 2022 to 2023, it's worth noting that EssilorLuxottica's gross margins have consistently outperformed the industry median, which is 0.5549 in 2023, indicating robust management and operational efficiencies. Consequently, in this Piotroski analysis criterion, EssilorLuxottica would score 0 points.

Asset Turnover Ratio is growing?

Evaluating the change in asset turnover is crucial as it provides insights into how efficiently a company is using its assets to generate sales. Higher asset turnover indicates better performance.

Comparing EssilorLuxottica's asset turnover of 0.4195 in 2023 with 0.4083 in 2022 demonstrates an increase, suggesting improved efficiency in using its assets to generate revenue. Historically, the company's asset turnover ratios have ranged from a high of 0.9097 in 2003 to a low of 0.2751 in 2020. This improvement in 2023 highlights a more efficient operational performance post-pandemic recovery. When compared to the midpoint of its historical range (around 0.64), this still marks a lower efficiency level, but the year-over-year improvement warrants the addition of 1 point to the score.