The stock of Barnes Group (NYSE:B, 30-year Financials) appears to be modestly 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 $53.68 per share and the market cap of $2.7 billion, Barnes Group stock shows every sign of being modestly overvalued. GF Value for Barnes Group is shown in the chart below.
Because Barnes Group is relatively overvalued, the long-term return of its stock is likely to be lower 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. Barnes Group has a cash-to-debt ratio of 0.13, which is in the bottom 10% of the companies in Industrial Products industry. The overall financial strength of Barnes Group is 5 out of 10, which indicates that the financial strength of Barnes Group is fair. This is the debt and cash of Barnes Group over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Barnes Group has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $1.1 billion and earnings of $1.04 a share. Its operating margin of 9.72% better than 66% of the companies in Industrial Products industry. Overall, GuruFocus ranks Barnes Group's profitability as fair. This is the revenue and net income of Barnes Group 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 Barnes Group is -5.8%, which ranks worse than 77% of the companies in Industrial Products industry. The 3-year average EBITDA growth rate is -10%, which ranks worse than 76% of the companies in Industrial Products 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, Barnes Group's return on invested capital is 2.94, and its cost of capital is 7.39. The historical ROIC vs WACC comparison of Barnes Group is shown below:
In closing, The stock of Barnes Group (NYSE:B, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 76% of the companies in Industrial Products industry. To learn more about Barnes Group stock, you can check out its 30-year Financials here.
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