The stock of Bridgestone (OTCPK:BRDCY, 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 $20.02 per share and the market cap of $28.2 billion, Bridgestone stock appears to be fairly valued. GF Value for Bridgestone is shown in the chart below.
Because Bridgestone is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Link: These companies may deliever higher future returns at reduced risk.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Bridgestone has a cash-to-debt ratio of 0.81, which is in the middle range of the companies in Vehicles & Parts industry. The overall financial strength of Bridgestone is 5 out of 10, which indicates that the financial strength of Bridgestone is fair. This is the debt and cash of Bridgestone over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Bridgestone has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $28.3 billion and loss of $0.154 a share. Its operating margin is 2.14%, which ranks in the middle range of the companies in Vehicles & Parts industry. Overall, the profitability of Bridgestone is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Bridgestone 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. Bridgestone's 3-year average revenue growth rate is worse than 69% of the companies in Vehicles & Parts industry. Bridgestone's 3-year average EBITDA growth rate is -18.1%, which ranks worse than 83% of the companies in Vehicles & Parts 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, Bridgestone's return on invested capital is -1.37, and its cost of capital is 3.14. The historical ROIC vs WACC comparison of Bridgestone is shown below:
Overall, The stock of Bridgestone (OTCPK:BRDCY, 30-year Financials) is believed to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 83% of the companies in Vehicles & Parts industry. To learn more about Bridgestone stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
