Is Darling Ingredients Stock Still Worth Its Valuation?

Darling stock is up over 200% year-over-year

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Darling Ingredients Inc. (NYSE:DAR) is a producer of organic ingredients and one of the largest producers of renewable clean energy, thanks to its wide array of sustainable protein and fat products. They collect waste streams from the agri-food industry, repurposing into specialty ingredients, such as hydrolyzed collagen, edible and feed-grade fats, animal proteins and meals, plasma, pet food ingredients, fuel feedstocks, and green bioenergy. To put it bluntly, you're into clean energy, Darling Ingredients is doing a pretty great job.

On May 20, the company announced that its Rousselot brand, a collagen-based solutions provider, expanded its range of purified, pharmaceutical grade, modified gelatins with the launch of X-Pure GelDAT. According to the company’s press release, the new product offers guaranteed purity and consistency at scale, vital to the successful development of biomedical applications used in the human body.

Last week though, Darling Ingredient stock shed 10%, distancing itself from its March 15 record high of $79.65. The pullback has seemingly run out of steam at DAR's 120-day moving average, and the stock still boasts a year-over-year lead of 209%. 

In a quick review of Darling Ingredients' earnings results over the past 12 months, DAR has managed to outperform expectations every single time. However, the company does have some fundamental issues with its top- and bottom-lines that should give investors pause.

Although revenues are up 5% over the past 12 months, the company reported two consecutive years of revenue declines in fiscal 2018 and fiscal 2019. Additionally, revenues are only up by 2.8% since fiscal 2017. On the bottom-line, Darling Ingredients' overall growth pattern is much better, with the company growing net income by more than 180% since fiscal 2017. However, the inconsistency remains; including declines in net income for fiscal 2018 and fiscal 2020.

On top of everything else, Darling Ingredients holds $1.59 billion in total debt and only $71.2 million in cash. Fundamentally, it just doesn’t add up that DAR is currently trading at price-earnings ratio of 31.33. And considering there's not a lot of contrarian pessimism to be unwound -- short sellers are few and far between while analysts already love the stock -- there's some logic behind sitting and waiting for DAR's fundamentals to turn sunnier before taking a flier.

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