Are RPM International institutional investors ready to buy?

RPM International's stock has demonstrated a notable Jensen Alpha of 0.0138, suggesting that the stock has generated a satisfactory risk-adjusted return. However, the company's downside deviation of 1.28 and a high kurtosis of 9.05 indicate a higher probability of extreme price changes, which could signal a potential sell-off by institutional investors. The negative skewness of -1.96 further points to the potential for large downside movements. Therefore, while RPM International has shown decent performance, its high volatility may be a concern for risk-averse investors.

Key Takeaways

RPM International operates within the Chemicals sector of the Materials industry.
Published over two weeks ago
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Reviewed by Ellen Johnson

RPM International, a prominent player in the Specialty Chemicals industry, has been a subject of interest for institutional investors. The company, listed on the NYSE, has a market valuation of $113.02 billion and a real value of $100.63 billion. Despite the analyst overall consensus leaning towards a 'Buy' with four strong buys, two buys, and eight holds, there is one sell recommendation that raises questions about potential volatility. The company's stock has shown a positive price action indicator of 1 and a period momentum indicator of 1.06, suggesting a steady upward trend. However, the market facilitation index of 1.7 indicates a possible increase in volatility. The daily balance of power at 0.6235 also suggests that buyers are slightly more aggressive than sellers. The analyst target price estimated value stands at $108, with the highest estimated target price reaching $119.88 and the lowest at $98.28. This wide range indicates potential fluctuations in the stock's price. The naive expected forecast value is $107.99, with a possible upside price of $109.14 and a downside price of $106.85. Given these factors, it's crucial for investors to keep a close eye on RPM International's performance. The possibility of a sell-off by institutional investors could lead to significant price changes, making it a potentially volatile investment option. Over a 60-day investment horizon, RPM International is projected to yield 1.79 times more return on investment than the market, despite being 1.79 times more volatile than its market benchmark. It trades about 0.01 of its potential returns per unit of risk, similar to the Dow Jones Industrial Average. Amid concerns in the chemicals sector, RPM International could be a viable investment alternative. The company is expected to generate above-average margins in the coming weeks. Despite its low volatility, RPM International is currently overvalued, with our calculations indicating a real value close to $100.63 per share.
Volatility is a rate at which the price of RPM International or any other equity instrument increases or decreases for a given set of returns. It is measured by calculating the standard deviation of the annualized returns over a given period of time and shows the range to which the price of RPM International may increase or decrease. In other words, similar to RPM's beta indicator, it measures the risk of RPM International and helps estimate the fluctuations that may happen in a short period of time. So if prices of RPM International fluctuate rapidly in a short time span, it is termed to have high volatility, and if it swings slowly in a more extended period, it is understood to have low volatility. Please read more on our technical analysis page.

How important is RPM International's Liquidity

RPM International financial leverage refers to using borrowed capital as a funding source to finance RPM International ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. RPM International financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to RPM International's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of RPM International's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between RPM International's total debt and its cash.

RPM International Gross Profit

RPM International Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing RPM International previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show RPM International Gross Profit growth over the last 10 years. Please check RPM International's gross profit and other fundamental indicators for more details.

RPM International Volatility Drivers

RPM International unsystematic risk is unique to RPM International and usually not directly affected by the market or economic environment. An example of unsystematic risk is the possibility of poor earnings or a layoff due to coronavirus. One may mitigate nonsystematic risk by buying different securities in the same industry or by buying in different sectors. For example, if you have a position in RPM International you can also buy Ecolab Inc. You can also mitigate this risk by investing in the materials sector as well as in companies having nothing to do with it. This type of risk is also called diversifiable risk and can be understood from analyzing RPM International important indicators over time. Here we run a correlation analysis between relevant fundamental ratios over at least ten year period to find a relationship in the way they react to changes in RPM International income statement and balance sheet. Here are more details about RPM volatility.
Click cells to compare fundamentals

Going after RPM Financials

The recent indifference towards the small price fluctuations of RPM International created some momentum for investors as it was traded today as low as 111.7 and as high as 113.4 per share. The company management teams did not add any value to RPM International investors in April. However, most investors can still diversify their portfolios with RPM International to hedge their inherited risk against high-volatility market scenarios. The stock standard deviation of daily returns for 90 days investing horizon is currently 1.14. The below-average Stock volatility is a good sign for longer-term investment options and for buy-and-hold investors.
"Never put all your eggs in one basket," a timeless piece of investment wisdom that may be relevant for institutional investors holding shares in RPM International. The company's Beta of 1.05 suggests it has a slightly higher volatility than the market, while its high Kurtosis of 9.05 indicates the possibility of extreme price changes. Furthermore, with a Probability of Bankruptcy at 12.80%, there is a moderate risk that could trigger a potential sell-off. However, RPM's strong Cash Flow from Operations at $577.11M and a healthy Current Ratio of 1.99X should provide some level of assurance to investors. Therefore, while volatility is evident, the decision to sell should be carefully considered against the company's solid financial performance..

RPM is expecting lower volatility in June

RPM International's stock has shown a significant decrease in skewness, down to -1.96. This negative skewness, indicating a left-sided distribution, suggests potential lower volatility and more stable performance in June. This could make RPM a safer investment option for those seeking to avoid high-risk stocks. With a skewness of -1.96 and kurtosis of 9.05, RPM International exhibits relatively low volatility. Understanding market volatility trends can help investors time the market. Using volatility indicators properly allows traders to measure RPM's stock risk against market volatility during bullish and bearish trends. The increased volatility in bear markets can impact RPM's stock price and stress investors as they see their shares' value decrease, often prompting portfolio rebalancing through the purchase of diverse financial instruments.

Our Conclusion on RPM International

When is the right time to buy or sell RPM International? Buying stocks such as RPM International isn't very hard. However, what challenging for most investors is doing it at the right time. Proper market timing is something most people cannot do without sophisticated tools, which help to isolate the right opportunities, deliver winning trades and diversify portfolios on a daily basis.
With a somewhat neutral outlook on your 90 days horizon, it may be better to hold off any trading activity and neither take up new shares of RPM nor trade your existing holdings in the Stock. It seems the expected volatility has not yet been fully factored into the current price. Please use our equity advice module to run different scenarios to ensure your current risk level and investment horizon are fully reflective of your current investing preferences in regards to RPM International.

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Editorial Staff

This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Gabriel Shpitalnik do not own shares of RPM International. Please refer to our Terms of Use for any information regarding our disclosure principles.

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