On October 27, 2023, Barnes Group Inc (B, Financial) saw a sharp decline of 26.52% in its daily stock price, marking a 3-month loss of 48.32%. Despite these figures, the company's Earnings Per Share (EPS) stands at 1.23. This begs the question: is Barnes Group's stock significantly undervalued? In this article, we will delve into a comprehensive valuation analysis of Barnes Group to uncover its intrinsic worth.
Company Overview
Barnes Group Inc is a leading industrial and aerospace manufacturer and service provider based in the U.S. The company operates two segments: Industrial and Aerospace. The Industrial segment manufactures precision parts, products, and systems for critical applications in various end markets, including transportation, industrial equipment, and consumer products. The Aerospace segment provides machined components, assemblies for original equipment manufacturer turbine engine, airframe and industrial gas turbine builders, and the military. Additionally, it offers aftermarket maintenance, overhaul, and repair services for turbine engine manufacturers, airlines, and the military. The company generates approximately half of its revenue from the domestic American market.
As of October 27, 2023, Barnes Group's stock price was $22.03, significantly lower than its GF Value of $47.84, suggesting potential undervaluation. The following income breakdown provides a detailed view of the company's financial performance:
Understanding Barnes Group's GF Value
The GF Value is a unique measure of a stock's intrinsic value, derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally trade.
According to the GF Value, Barnes Group's stock appears to be significantly undervalued. The stock's fair value is determined by historical multiples, an internal adjustment based on the company's past growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued, leading to poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued and likely to yield higher future returns. Given Barnes Group's current price of $22.03 per share, the stock appears to be significantly undervalued.
Since Barnes Group is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth. The GF Value chart of Barnes Group illustrates this:
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Financial Strength of Barnes Group
Investing in companies with poor financial strength poses a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. A great starting point is to look at the cash-to-debt ratio and interest coverage. Barnes Group has a cash-to-debt ratio of 0.13, which is worse than 89.46% of 2857 companies in the Industrial Products industry. GuruFocus ranks Barnes Group's overall financial strength at 6 out of 10, indicating fair financial strength. The following chart shows Barnes Group's debt and cash over the past years:
Profitability and Growth of Barnes Group
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profitability margins usually dictate a better investment compared to a company with lower profit margins. Barnes Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.30 billion and Earnings Per Share (EPS) of $1.23. Its operating margin is 7.95%, which ranks better than 55.39% of 2901 companies in the Industrial Products industry. Overall, GuruFocus ranks the profitability of Barnes Group at 7 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Barnes Group is -5.1%, which ranks worse than 83.09% of 2738 companies in the Industrial Products industry. The 3-year average EBITDA growth is -23.4%, which ranks worse than 90.61% of 2427 companies in the Industrial Products industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) and the weighted cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, ROIC should be higher than WACC. For the past 12 months, Barnes Group's ROIC was 3.89, and its WACC was 10.03. The historical ROIC vs WACC comparison of Barnes Group is shown below:
Conclusion
In summary, the stock of Barnes Group (B, Financial) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 90.61% of 2427 companies in the Industrial Products industry. To learn more about Barnes Group stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
