BrightSphere Investment Group Stock Shows Every Sign Of Being Significantly Overvalued

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GF Value
Apr 16, 2021
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The stock of BrightSphere Investment Group (NYSE:BSIG, 30-year Financials) appears to be 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 $23.84 per share and the market cap of $1.9 billion, BrightSphere Investment Group stock is believed to be significantly overvalued. GF Value for BrightSphere Investment Group is shown in the chart below.

BrightSphere Investment Group GF Value Chart

Because BrightSphere Investment Group is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 3.2% over the past five years.

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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. BrightSphere Investment Group has a cash-to-debt ratio of 0.80, which ranks worse than 67% of the companies in Asset Management industry. Based on this, GuruFocus ranks BrightSphere Investment Group's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of BrightSphere Investment Group over the past years:

debt and cash

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. BrightSphere Investment Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $718.5 million and earnings of $3.48 a share. Its operating margin is 27.25%, which ranks in the middle range of the companies in Asset Management industry. Overall, the profitability of BrightSphere Investment Group is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of BrightSphere Investment Group over the past years:

Revnue and Net Income

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. BrightSphere Investment Group's 3-year average revenue growth rate is in the middle range of the companies in Asset Management industry. BrightSphere Investment Group's 3-year average EBITDA growth rate is 52.6%, which ranks better than 88% of the companies in Asset Management industry.

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, BrightSphere Investment Group's ROIC was 11.84, while its WACC came in at 10.60. The historical ROIC vs WACC comparison of BrightSphere Investment Group is shown below:

ROIC vs WACC

Overall, the stock of BrightSphere Investment Group (NYSE:BSIG, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 88% of the companies in Asset Management industry. To learn more about BrightSphere Investment Group stock, you can check out its 30-year Financials here.

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