The stock of B2Gold (AMEX:BTG, 30-year Financials) appears to be 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 $5.19 per share and the market cap of $5.4 billion, B2Gold stock appears to be modestly undervalued. GF Value for B2Gold is shown in the chart below.
Because B2Gold is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 38.1% over the past five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. B2Gold has a cash-to-debt ratio of 4.36, which is in the middle range of the companies in Metals & Mining industry. GuruFocus ranks the overall financial strength of B2Gold at 8 out of 10, which indicates that the financial strength of B2Gold is strong. This is the debt and cash of B2Gold 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. B2Gold has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $1.8 billion and earnings of $0.6 a share. Its operating margin is 49.33%, which ranks better than 96% of the companies in Metals & Mining industry. Overall, GuruFocus ranks the profitability of B2Gold at 8 out of 10, which indicates strong profitability. This is the revenue and net income of B2Gold over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of B2Gold is 38.1%, which ranks better than 94% of the companies in Metals & Mining industry. The 3-year average EBITDA growth rate is 59.8%, which ranks better than 95% of the companies in Metals & Mining industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, B2Gold's return on invested capital is 23.08, and its cost of capital is 7.01. The historical ROIC vs WACC comparison of B2Gold is shown below:
In short, the stock of B2Gold (AMEX:BTG, 30-year Financials) appears to be modestly undervalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 95% of the companies in Metals & Mining industry. To learn more about B2Gold stock, you can check out its 30-year Financials here.
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