About Linde Plc

Linde plc is one of those companies that we love; ubiquitous, quiet, and an industry giant. They are the quintessential conglomerate corporation; a boring, next to unrecognizable parent organization with a few industry juggernauts under its belt.

Two of the more well-known companies owned by Linde are Praxair and Gist Limited. Both the parent company (Linde) and its subsidiaries are in the ever so intriguing industrial gas business.

Specifically, the conglomerate engages in providing solutions for a multitude of industries ranging from metal production and healthcare to paper products and the food and beverage space. For example, Praxair has a food and beverage segment that helps storers of raw meat or other perishable goods (at delis, grocery stores, restaurant kitchens etc…) maintain the quality of their products, slow any potential bacterial growth, thus providing a better (and regulatory compliant) end product for the consumer.

Linde provides these types of services for many industries.

Nearly every other day on my university’s campus, I see trucks filled with bland cylindrical helium containers wobbling as the driver trudges through campus. I noticed “Linde plc” in small lettering on the side of the truck. Only until now did I even have a clue as to what the company does.

You find inspiration in weird places!

While Linde is a giant and has a foothold in various global businesses, the proof is in the pudding. The pudding, in this case, is in those boring little things that tend to ultimately make or break a business.

Financials!

A global brand and a large-scale business model centered around customers that need to follow regulatory measures (or they get shut down) sounds like a great type of company to own stock in.

However, we want objective facts; not a happy-go-lucky, wishful approach. After all, it’s our hard-earned money that we’re investing right?

Let us walk you through a few of the core metrics that drive Linde today, its future prospects, its ability to turn revenue into profit, its dividend status, whether or not there is value behind the company’s current share price, and a lot more.

Linde Stock Price Valuation

In 2020, Linde reported revenues north of $27 billion, currently maintaining a market capitalization of nearly $150 billion.

It should be understood that compared to its peers, Linde is the largest player (by market share) in the industrial gas space. The second largest company in the industry is France-based Air Liquide, holding a market capitalization of approximately $81 billion.

Our team sees this as a considerable moat between the two and doesn’t anticipate Linde relinquishing their spot at the top anytime soon.

Let’s dig into the fundamentals, shall we?

As it relates to valuation, Linde does appear to be overvalued at the time of this analysis, with a price to earnings (P/E) ratio of 49.18 (above 20 is said to be generally overvalued).

However, we don’t recommend waiting to time the bottom for Linde.

Outside of COVID-19, the stock hasn’t dropped dramatically enough to warrant waiting for the “perfect” buying opportunity. While the current share price hovering $317 is a pretty penny to pay, the stock is likely to continue to increase over time given its historical performance and future business prospects.

UPDATE: From the time this analysis was initially completed, the stock price has since dropped down to $293.51 on the day of its publishing (2/15/2022). While not a huge discount from $317, a discount nonetheless!

This price drop has pushed the stock’s price to earnings ratio down to around 40. Therefore, the company’s stock still does appear overvalued relative to its intrinsic value, however, this is one of those silent stocks that if you were to buy in the near future, it wouldn’t likely qualify as catching a falling knife if the stock continued to fall with a falling market.

Specifically, while many investors can get trapped into buying random stocks, not considering their intrinsic value and financials, simply because the stock drops 20%, Linde is more of a feather being dropped from the top of the Empire State Building but before it hits rock bottom, it lands on a cloud and slowly travels back up into the atmosphere.

In other words, if Linde drops, our team at MacroHint isn’t worried. We know there is value in this company and that this global conglomerate has a proven track record of providing necessary and essential goods and services for people, organizations, and communities all around the world.

Positive sentiment aside, let’s dig back into the numbers.

Linde’s Financials

One of the most important aspects of a company of Linde’s magnitude is their profitability. You would think (and hope) that a company the size of Linde would be able to squeeze out a larger than industry average profit; thankfully, they do.

Specifically, Linde’s current annual gross profit margin is 9% above the industry average. Linde also holds a larger than normal operating profit margin and net profit margin of 4% and 5% (respectively) above its peers.

Unfortunately, while sifting through their financials, we found that the industrial gas leader is lacking in their financial efficiency. In particular, Linde’s return on equity appeared alarmingly low at 7.88% compared to the industry average of 30.95%. This could be for a few different reasons, however, the most likely seems to be they’re still in the process of paying down debt from previous high-priced acquisitions.

This would make sense given that the Praxair acquisition is a relatively recent one (December 2016), a merger valued somewhere in the neighborhood of $35 billion. While an initially notable concern, we don’t see this as a major threat to the future efficacy of Linde. Due to their market share and pricing power, their return on equity is likely to rise gradually over the next few years.

It’s also comforting that the company’s operating profits are considerably higher than their debt-related interest payments. This should allow Linde to pay down their debt quickly.

For the dividend lovers of the world, Linde also supplies shareholders with a healthy annual dividend of $4.24.

Linde has an incredibly strong balance sheet, holding around $81 billion in total assets and almost $38 billion in total liabilities. This puts the company in a strong position to continue growing nonorganically through acquisitions and expand into new markets around the world (and different products and services as well).

Linde’s Future Growth

Given the aforementioned ubiquity and financial sustainability of their business model, Linde’s future looks promising.

There will likely always be a market filled with millions (likely billions) of consumers needing Linde’s products. The industrial gas conglomerate, by nature, is a fairly boring, diversified, and a moat-filled company that will tend to stay below the pundits’ radar. However, you’ll likely wish you would’ve bought the stock and held it for the rest of your life.

In fact, if it’s too boring for the pundits, we think that tends to be a good sign. Specifically, stocks that tend to trade in the headlines or that Jim Cramer screams about have greater potential to trade in a more volatile fashion (in our opinions). As we’ve said many times before, we don’t trade on headlines alone nor do we trade to begin with—we invest.

We also believe and understand that while a company’s past performance is not a 1:1 indication of future performance, it can (a lot of the times) serve as a reference, helping you determine whether or not you think the company’s stock is right for you going forward (ie. do you like the direction management is leaning the company towards, is management consistent with their actions and do they operate in the best interests of all stakeholders etc…).

Recession Proof

It’s also important to note that historically, Linde’s stock tends to perform normally during periods of recession or economic distress.

This is a major point of attraction for us.

However, while the company’s share price was not immune to the initial shock of COVID-19 (dropping roughly 30%), the stock has been in an overall shallow, sustained uptrend since the onset of the pandemic.

One of the best aspects of Linde’s various lines of business is in many respects, whether the economy opens or shuts, they’ll still likely be providing products and services to business, universities, schools, manufacturing plants, grocery stores, and many other establishments near or around you. However, the frequency of which they push their products out might decrease (depending on the business segment they’re supplying). However, even if your local grocery store is closed or at limited capacity due to COVID-19 concerns, grocery store operators still need to keep their produce, deli meat, and other products fresh and safe to eat.

Linde is an integral part of ensuring the safety and shelf life of various foods.

Again, this is an example of just one of the many business segments Linde and its subsidiaries serve.

Should you buy Linde plc stock?

Given the relative size, financial strength, and strategic subsidiaries under the Linde name, we currently give the company a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed as or understood as professional or formal financial and/or investment advice. We are simply expressing our opinions regarding a publicly traded entity.