Borr Drilling Ltd (BORR, Financial) has recently experienced a daily gain of 3.73% and a three-month gain of 6.41%. Despite the company's Loss Per Share of 0.29, the critical question remains: is the stock significantly overvalued? Our extensive valuation analysis aims to answer this question and provide valuable insights for potential investors. We invite you to delve into the following analysis to understand Borr Drilling's true worth.
Company Introduction
Borr Drilling Ltd is a renowned drilling contractor that owns and operates 16 jack-up rigs of modern and high-specification designs. The company provides drilling services to the oil and gas exploration and production industry, primarily in Norway. With a market cap of $1.90 billion and sales of $616 million, Borr Drilling's stock price currently stands at $7.5. However, the GF Value, an estimation of the stock's fair value, is only $3.22, indicating significant overvaluation. This discrepancy paves the way for a deeper analysis of the company's value.
Understanding GF Value
The GF Value is a unique metric that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's fair value. If the stock price significantly surpasses the GF Value Line, the stock is considered overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, suggesting higher future returns.
Borr Drilling's Valuation
The stock of Borr Drilling gives every indication of being significantly overvalued, according to our valuation method. Our GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. As the current price of Borr Drilling's stock is $7.5 per share, significantly above the GF Value Line, it appears to be overvalued. Consequently, the long-term return of Borr Drilling's stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with poor financial strength poses a higher risk of permanent loss. A company's financial strength can be assessed by looking at its cash-to-debt ratio and interest coverage. Borr Drilling's cash-to-debt ratio of 0.05 is lower than 85.39% of 1027 companies in the Oil & Gas industry. This suggests that Borr Drilling's overall financial strength is poor, with a rating of 3 out of 10.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent long-term profitability, poses less risk. Borr Drilling, with high operating margins of 23.39%, ranks better than 70.46% of 975 companies in the Oil & Gas industry. However, Borr Drilling's profitability rank is 4 out of 10, indicating poor profitability. Despite this, Borr Drilling's growth ranks better than 85.7% of 825 companies in the Oil & Gas industry, with an average annual revenue growth of -24.1% and a 3-year average EBITDA growth of 54.8%.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) is another way to assess its profitability. For the past 12 months, Borr Drilling's ROIC stands at 7.53, while its WACC is 14.44, suggesting that the company's return on invested capital is lower than its cost of capital.
Conclusion
In conclusion, the stock of Borr Drilling (BORR, Financial) appears to be significantly overvalued. Despite the company's poor financial condition and profitability, it has demonstrated better growth than 85.7% of 825 companies in the Oil & Gas industry. To learn more about Borr Drilling's stock, you can check out its 30-Year Financials here.
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