The stock of Bombardier (OTCPK:BDRBF, 30-year Financials) shows every sign of being modestly undervalued, 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 $0.71 per share and the market cap of $1.7 billion, Bombardier stock shows every sign of being modestly undervalued. GF Value for Bombardier is shown in the chart below.
Because Bombardier is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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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. Bombardier has a cash-to-debt ratio of 0.27, which is worse than 67% of the companies in Aerospace & Defense industry. The overall financial strength of Bombardier is 3 out of 10, which indicates that the financial strength of Bombardier is poor. This is the debt and cash of Bombardier over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Bombardier has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $10.1 billion and loss of $0.374 a share. Its operating margin is -6.52%, which ranks worse than 76% of the companies in Aerospace & Defense industry. Overall, GuruFocus ranks the profitability of Bombardier at 4 out of 10, which indicates poor profitability. This is the revenue and net income of Bombardier 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. Bombardier's 3-year average revenue growth rate is in the bottom 10% of the companies in Aerospace & Defense industry. Bombardier's 3-year average EBITDA growth rate is 63.6%, which ranks better than 93% of the companies in Aerospace & Defense 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, Bombardier's return on invested capital is -3.57, and its cost of capital is 11.04. The historical ROIC vs WACC comparison of Bombardier is shown below:
In conclusion, Bombardier (OTCPK:BDRBF, 30-year Financials) stock gives every indication of being modestly undervalued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 93% of the companies in Aerospace & Defense industry. To learn more about Bombardier stock, you can check out its 30-year Financials here.
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