The stock of BHP Group PLC (NYSE:BBL, 30-year Financials) appears to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $58.045 per share and the market cap of $144.9 billion, BHP Group PLC stock gives every indication of being fairly valued. GF Value for BHP Group PLC is shown in the chart below.
Because BHP Group PLC is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 9% over the past three years and is estimated to grow 2.90% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. BHP Group PLC has a cash-to-debt ratio of 0.41, which which ranks worse than 80% of the companies in Metals & Mining industry. The overall financial strength of BHP Group PLC is 6 out of 10, which indicates that the financial strength of BHP Group PLC is fair. This is the debt and cash of BHP Group PLC over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. BHP Group PLC has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $46.3 billion and earnings of $2.75 a share. Its operating margin of 36.36% better than 90% of the companies in Metals & Mining industry. Overall, GuruFocus ranks BHP Group PLC's profitability as strong. This is the revenue and net income of BHP Group PLC over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. BHP Group PLC's 3-year average revenue growth rate is better than 69% of the companies in Metals & Mining industry. BHP Group PLC's 3-year average EBITDA growth rate is 6.3%, which ranks in the middle range of the companies in Metals & Mining industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, BHP Group PLC's return on invested capital is 10.82, and its cost of capital is 7.43. The historical ROIC vs WACC comparison of BHP Group PLC is shown below:
In summary, the stock of BHP Group PLC (NYSE:BBL, 30-year Financials) shows every sign of being fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Metals & Mining industry. To learn more about BHP Group PLC stock, you can check out its 30-year Financials here.
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