The stock of Bunge (NYSE:BG, 30-year Financials) shows every sign of being significantly overvalued, 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 $78.125 per share and the market cap of $11 billion, Bunge stock is estimated to be significantly overvalued. GF Value for Bunge is shown in the chart below.
Because Bunge is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Bunge has a cash-to-debt ratio of 0.09, which ranks worse than 82% of the companies in the industry of Consumer Packaged Goods. Based on this, GuruFocus ranks Bunge's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Bunge 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. Bunge has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $41.4 billion and earnings of $7.59 a share. Its operating margin is 3.45%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of Bunge is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Bunge over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Bunge is -5.2%, which ranks worse than 76% of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth is 21.9%, which ranks better than 81% of the companies in the industry of Consumer Packaged Goods.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Bunge's ROIC was 7.39, while its WACC came in at 4.38. The historical ROIC vs WACC comparison of Bunge is shown below:
In short, the stock of Bunge (NYSE:BG, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 81% of the companies in the industry of Consumer Packaged Goods. To learn more about Bunge 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.