Last update on 2024-06-07

Methode Electronics (MEI) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Discover the detailed Piotroski F-Score analysis of Methode Electronics (MEI) for 2023, highlighting financial stability, profitability, and investment rating.

Short Analysis - Piotroski Score: 4

We're running Methode Electronics (MEI) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score for Methode Electronics (MEI) is 4 out of 9. The factors contributing positively are: positive net income, positive cash flow from operations, cash flow higher than net income, and a reduction in the number of shares. Negatively, the company showed declines in ROA, increased leverage, a decrease in current ratio, decline in gross margin, and a decrease in asset turnover. These mixed results indicate financial stability but raise concerns over some operational efficiencies.

Insights for Value Investors Seeking Stable Income

Given that Methode Electronics (MEI) has a Piotroski F-Score of 4, the company shows some positive aspects in profitability and cash management. However, there are issues with efficiency and increasing financial risk. While it can be considered a stable company with a sound approach to managing shares and generating revenue, potential investors should be cautious and consider further due diligence. Particularly, areas of concern include declining ROA and gross margins, which might affect future growth and profitability. It's worth considering for investment but requires a deeper look into how the company plans to address these operational challenges.

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

Profitability of Methode Electronics (MEI)

Company has a positive net income?

The criterion regards whether the net income is positive, which is vital for assessing profitability.

For Methode Electronics (MEI), the net income for 2023 is $77.1 million. This positive net income indicates profitability, thus adding 1 point in the Piotroski score. Examining the 20-year trend, MEI has seen significant fluctuations and even negative income in 2009, but has maintained positive net income consistently since 2010, which signifies a resilient and potentially growing company. This positive trend bodes well for its overall financial health and investor confidence.

Company has a positive cash flow?

Cash Flow from Operations (CFO) measures the cash generated from a company's regular business operations and is a crucial measure of financial health.

For Methode Electronics (MEI), the CFO in 2023 is $132.8 million, indicating a positive cash flow from operations. This positive trend is beneficial as it means the company is generating enough cash to sustain its operations. Moreover, this positive cash flow has been a consistent trend over the past years with a few fluctuations. For instance, the company saw a peak in operating cash flow of $179.8 million in 2021 and the lowest at $17.04 million in 2011. This consistency in generating positive cash flows over the past two decades demonstrates robust operational efficiency and financial stability. Hence, for Piotroski analysis, MEI earns 1 point for positive CFO.

Return on Assets (ROA) are growing?

The Change in ROA criterion measures the year-over-year change in Return on Assets (ROA). ROA provides insight into how efficiently a company is using its assets to generate earnings. An increase indicates improved operational efficiency, whereas a decline suggests the opposite.

In 2023, Methode Electronics (MEI) reported an ROA of 0.052, compared to 0.0716 in 2022. This represents a decline in the ROA, suggesting a decrease in how efficiently the company is utilizing its assets to generate profits. Therefore, this trend is unfavorable, and per Piotroski’s criteria, Methode Electronics would score 0 points in this category. Historically, the company's ROA appears to lag behind the industry median, which remains consistently higher. This prolonged underperformance in ROA compared to the sector median underscores a need for strategic action toward asset optimization. Given the context over the past two decades, it marks a concerning trend that could impact future financial stability.

Operating Cashflow are higher than Netincome?

The criterion compares operating cash flow to net income, rewarding companies where cash flow is higher than net income. It signals efficient earnings quality and cash generation.

For Methode Electronics (MEI) in 2023, the operating cash flow stands at $132.8 million, significantly higher than the net income of $77.1 million. This results in a positive indicator for the company, earning it a point in the Piotroski analysis. Historically, Methode Electronics has maintained a trend where its operating cash flow often surpasses its net income, exemplified in years such as 2015 and 2019. This trend suggests robust cash management and earnings quality, which is favorable for potential investors. The point for this criterion underscores a positive outlook for FarmaForce's operational efficiency.

Liquidity of Methode Electronics (MEI)

Leverage is declining?

Change in leverage measures the difference between the current year and previous year's ratios of total liabilities to total assets. Lower leverage indicates a reduction in financial risk.

For Methode Electronics (MEI), the leverage ratio increased from 0.1528 in 2022 to 0.2061 in 2023. This represents an increase in leverage, indicating a rise in the company's financial risk. Given the history over the past 20 years, this is not unprecedented, but it does suggest increasing reliance on debt. Moving the point assessment to 0 since the trend is unfavorable.

Current Ratio is growing?

The current ratio measures a company's ability to pay short-term obligations or those due within one year. For Methode Electronics (MEI), a higher current ratio suggests better short-term financial health.

Contrary to the hypothesis in the given instructions, the current ratio for Methode Electronics (MEI) has actually decreased from 3.3351 in 2022 to 2.914 in 2023. This reduction indicates a slight decline in the company's ability to cover its short-term liabilities with its short-term assets. While a current ratio above 1 generally signifies financial stability, a comparison with the last 20 years highlights that the current ratio has seen higher marks, such as 4.2629 in 2017, but also lower ones, such as 2.5069 in 2019. The industry median for current ratio in 2023 stands at 2.0742, which MEI still surpasses, indicating better short-term financial health than its peers despite the decrease. Given the drop in 2023, this criterion would score a 0 in the Piotroski analysis.

Number of shares not diluted?

Comparing changes in the number of shares outstanding is crucial in the Piotroski Score as it indicates how a company raises capital and manages debt. Increasing shares can dilute existing shareholders' value, while decreasing shares might indicate share buybacks and a stronger financial position.

In 2023, Methode Electronics (MEI) had 36,016,686 shares outstanding, down from 37,299,270 shares in 2022. This represents a decrease of approximately 3.4%. Share buybacks reduce the number of shares in circulation, usually a sign of management's confidence in the company's solid financial health and future prospects. Over the last 20 years, the trend for MEI has been relatively stable, with small fluctuations mostly. Therefore, this decrease in outstanding shares in 2023 is a positive sign, earning it a point in the Piotroski Score, indicating good financial health.

Operating of Methode Electronics (MEI)

Cross Margin is growing?

Gross margin represents the percentage of revenue that exceeds the cost of goods sold. It indicates how well a company controls its production and other direct costs.

The Gross Margin for Methode Electronics (MEI) decreased from 0.2277 in 2022 to 0.2239 in 2023, which suggests a reduction in operational efficiency. This trend is unfavourable as it shows that the company is making less money from each dollar of sales as compared to the previous year. Over the past 20 years, the company's gross margin has seen fluctuations, with some years performing close to or above the industry median. Notably, in 2016 and 2017, MEI's gross margin peaked at 0.2631 and 0.2674, respectively, outpacing the industry median. However, since 2018, it has been trailing the industry median, suggesting room for improvement in cost management. Therefore, no point is awarded.

Asset Turnover Ratio is growing?

Asset Turnover measures a company’s efficiency in using its assets to generate sales. A higher ratio indicates more effective utilization.

Comparing the Asset Turnover from 2022 which was 0.8148 to that in 2023 at 0.7948, the Asset Turnover has decreased. Hence, Methode Electronics does not get a point for this criterion. This downward trend might indicate a reduction in efficiency in utilizing assets to generate revenue. Over the last 20 years, MEI’s Asset Turnover has shown fluctuations, peaking in 2014 at 1.5296 and trending downwards since 2015, reflecting operational challenges or shifts in asset management strategies.