Last update on 2024-06-07

Encore Wire (WIRE) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Encore Wire Piotroski F-Score Analysis for 2023 reveals a score of 5/9, focusing on profitability, liquidity, and operating efficiency. Complete financial insights.

Short Analysis - Piotroski Score: 5

We're running Encore Wire (WIRE) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Encore Wire (WIRE) was analyzed using the Piotroski 9-criteria system focusing on profitability, liquidity, and operational efficiency. Here's a detailed summary of the findings: 1. **Profitability**: - The net income for 2023 is positive at $372,399,000, adding 1 point. - Operating cash flow for 2023 is also positive at $455,206,000, adding another point. - ROA has decreased from 0.4045 in 2022 to 0.1868 in 2023, so 0 points are given. - Operating cash flow is higher than net income, adding 1 point. 2. **Liquidity**: - Leverage ratio remains unchanged at 0, earning 0 points. - The current ratio declined from 9.7227 in 2022 to 7.5596 in 2023, adding no points. - The number of outstanding shares decreased by 2,286,000 from 2022 to 2023, adding 1 point. 3. **Operating Efficiency**: - Gross margin decreased from 0.3686 in 2022 to 0.2554 in 2023, so 0 points are given. - Asset turnover ratio dropped from 1.7004 in 2022 to 1.2882 in 2023, scoring no points. Encore Wire achieves a Piotroski F-Score of 5 out of 9, pointing to moderate financial health but with notable areas for improvement in profitability efficiency and asset utilization.

Insights for Value Investors Seeking Stable Income

Based on the analysis, Encore Wire (WIRE) has a mid-range Piotroski F-Score of 5 out of 9, suggesting it has a moderate financial position. While the company continues to show strong profitability and cash flow, there are concerns regarding the declining ROA, gross margin, and asset turnover ratio. Additionally, the current ratio has decreased, though it still remains above industry standards. For a potential investor, Encore Wire might be worth considering but due diligence is recommended—especially focusing on their efficiency in resource utilization and strategies to improve their gross margin and ROA. Overall, while Encore Wire exhibits positive signs of financial health, caution is advised since there are areas needing attention for long-term stability.

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

Profitability of Encore Wire (WIRE)

Company has a positive net income?

Checking whether the net income is positive or negative is a fundamental step in Piotroski Analysis as it indicates the company's profitability. A positive net income adds a point to the Piotroski F-Score.

The net income for Encore Wire (WIRE) in 2023 is $372,399,000, which is positive. This trends well when we look at the historical net income data spanning from 2003 to 2023. For the majority of the last 20 years, Encore Wire has maintained a positive net income. The rather impressive figures in recent years such as $541,422,000 in 2021 and $717,841,000 in 2022 illustrate a strong profitability trend. Therefore, we add 1 point for this criterion in Piotroski Analysis. This indicates that the company continues to be profitable, a key factor in assessing financial health and stability.

Company has a positive cash flow?

Historically, the cash flow from operations (CFO) indicates a company's ability to generate cash from its core operations. Positive operating cash flow is a sign of a company's financial health and operational efficiency.

In 2023, Encore Wire reported a cash flow from operations (CFO) of $455,206,000. This number is indeed positive. This positive trend suggests that Encore Wire is generating sufficient cash from its core operations to cover its operating expenses and invest in its future growth. Over the last twenty years, Encore Wire has experienced fluctuations in its operating cash flow. There were some negative years, such as 2005, with -$5,002,738, and 2010, with $2,444,000. However, the recent trend has been significantly upward, especially when comparing the 2023 CFO to previous years like 2021 ($418,418,000) and 2022 ($688,883,000). This stability and growth in CFO is a very positive indicator and adds 1 point to the Piotroski F-Score, reflecting a sturdy cash flow strategy and operational efficiency.

Return on Assets (ROA) are growing?

Change in ROA measures the company's ability to generate profit from its assets. An increase suggests better efficiency and profitability.

In 2023, Encore Wire's Return on Assets (ROA) was 0.1868, which shows a substantial decrease compared to the ROA of 0.4045 in 2022. This results in a trend of -0.2177, indicating a weakened ability to convert assets into profit. Historically, Encore Wire’s ROA has shown significant fluctuations. Observing the industry median ROA over the same period, which mostly hovers around 0.28% to 0.30%, underscores the volatility. Compared to the industry median of 0.2995 in 2023, Encore Wire significantly underperforms. Therefore, in the Piotroski analysis, Encore Wire scores 0 points because of the decline in ROA over the past year. This trend signals a potential concern for investors regarding the company's operational efficiency.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income signifies strong earnings quality and reliable cash flow management.

For the fiscal year 2023, Encore Wire (WIRE) had an operating cash flow of $455,206,000, which notably surpasses the net income of $372,399,000. This trend is undoubtedly positive, meriting an addition of one point to the Piotroski F-Score. Over the past two decades, Encore Wire's operating cash flow has typically tracked above or near net income, ensuring the company’s ability to generate real cash from operations. In particular, the substantial operating cash flow in recent years indicates efficient cash flow management, consistent operational performance, and possibly prudent cost controls. The years 2021 and 2022 significantly contributed to this positive trend, where operating cash flow of $418.4 million and $688.9 million respectively, greatly exceeded net incomes of $541.4 million and $717.8 million. Such figures underscore the company’s financial resilience and operational robustness, making it reliable from an investment standpoint.

Liquidity of Encore Wire (WIRE)

Leverage is declining?

Analyze the leverage ratio of Encore Wire (WIRE) over time and focus on the provided years: 2022 and 2023. Explain why leverage is important in assessing a company's financial health.

Encore Wire's leverage ratio has remained at 0 from 2009 to 2022, marking over a decade of no leverage usage. However, 2023 shows a change with an increase in leverage from 0 to 0. This shift indicates that Encore Wire has moved towards employing leverage, which can introduce additional financial risk but may also enhance growth opportunities if managed properly. Given that the leverage did not decrease, the Piotroski score for this metric is 0.

Current Ratio is growing?

Examine the change in Current Ratio for Encore Wire from 2022 to 2023 and its significance.

The Current Ratio for Encore Wire in 2023 is 7.5596, whereas it was significantly higher at 9.7227 in 2022. This reflects a noticeable decrease in the Current Ratio, which is traditionally considered to be indicative of a worse liquidity position for the company. Over the last two decades, Encore Wire's Current Ratio exhibited significant variance, with a notably high ratio in 2008 (12.2093) and relatively low in 2009 (3.1198). Despite the recent decline, Encore Wire's Current Ratio in 2023 is still profoundly higher than the industry median of 2.2293. This suggests that although there is a negative trend in the one-year period, the company continues to maintain a remarkably better liquidity position compared to industry standards. Therefore, in terms of the Piotroski F-score grading for liquidity improvement, Encore Wire would earn 0 points for this criterion because the company's Current Ratio decreased from 2022 to 2023.

Number of shares not diluted?

The trend of outstanding shares provides insight into a company's share dilution policies, which can affect shareholder value.

The Outstanding Shares of Encore Wire decreased from 19,159,000 in 2022 to 16,873,000 in 2023. This resulted in a decrease of 2,286,000 shares, reflecting a shareholder-favorable trend. Over the last 20 years, the Outstanding Shares have seen a general downtrend, peaking in 2007 at 23,690,000 shares. The share buyback demonstrates management's commitment to enhancing shareholder value by reducing share dilution. Therefore, this criterion earns 1 point.

Operating of Encore Wire (WIRE)

Cross Margin is growing?

The change in gross margin measures the difference in a company's gross profit as a percentage of sales year-over-year.

Comparing Encore Wire's gross margin of 0.2554 in 2023 with the gross margin of 0.3686 in 2022, we find that the gross margin has substantially decreased. This represents a significant decline of 30.7%. Historically, the company's gross margin has fluctuated, with enormous improvements since its low of 0.0771 in 2009. However, the decline in 2023 places it below the industry median of 0.2995 for the same year, indicating a concerning trend. Therefore, for the Piotroski Score, no point is awarded for this criterion.

Asset Turnover Ratio is growing?

Asset Turnover is a measure of how efficiently a company uses its assets to generate sales. It is an important factor as higher turnover signifies better asset management.

Encore Wire's Asset Turnover ratio in 2023 is 1.2882, compared to 1.7004 in 2022. This indicates a decline in the company's efficiency in utilizing its assets to generate revenue, contrary to the ideal criterion for Piotroski analysis. The historical trend from the past 20 years shows considerable fluctuation, with a peak of 3.0374 in 2006 and a significant drop to 1.2882 in 2023. This continuous downtrend in recent years is a negative indicator, hence this criterion scores 0 points.