The stock of BEC World PCL (BKK:BEC, 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 ฿9.7 per share and the market cap of ฿19.4 billion, BEC World PCL stock gives every indication of being significantly overvalued. GF Value for BEC World PCL is shown in the chart below.
Because BEC World PCL is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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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. BEC World PCL has a cash-to-debt ratio of 0.84, which ranks in the middle range of the companies in the industry of Media - Diversified. Based on this, GuruFocus ranks BEC World PCL's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of BEC World PCL 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. BEC World PCL has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of ฿5.9 billion and loss of ฿0.11 a share. Its operating margin is -1.95%, which ranks in the middle range of the companies in the industry of Media - Diversified. Overall, GuruFocus ranks the profitability of BEC World PCL at 6 out of 10, which indicates fair profitability. This is the revenue and net income of BEC World PCL 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 BEC World PCL is -19%, which ranks worse than 80% of the companies in the industry of Media - Diversified. The 3-year average EBITDA growth rate is -19.2%, which ranks worse than 75% of the companies in the industry of Media - Diversified.
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, BEC World PCL's return on invested capital is -2.36, and its cost of capital is 12.52. The historical ROIC vs WACC comparison of BEC World PCL is shown below:
In conclusion, the stock of BEC World PCL (BKK:BEC, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 75% of the companies in the industry of Media - Diversified. To learn more about BEC World PCL stock, you can check out its 30-year Financials here.
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