The stock of Brookfield Renewable Partners LP (NYSE:BEP, 30-year Financials) is believed 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 $36.3 per share and the market cap of $9.9 billion, Brookfield Renewable Partners LP stock is estimated to be significantly overvalued. GF Value for Brookfield Renewable Partners LP is shown in the chart below.
Because Brookfield Renewable Partners LP is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 9.3% over the past three years and is estimated to grow 1.24% annually over the next three to 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. Brookfield Renewable Partners LP has a cash-to-debt ratio of 0.02, which is in the bottom 10% of the companies in the industry of Utilities - Independent Power Producers. GuruFocus ranks the overall financial strength of Brookfield Renewable Partners LP at 2 out of 10, which indicates that the financial strength of Brookfield Renewable Partners LP is poor. This is the debt and cash of Brookfield Renewable Partners LP 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. Brookfield Renewable Partners LP has been profitable 4 years over the past 10 years. During the past 12 months, the company had revenues of $3.5 billion and loss of $0.847 a share. Its operating margin of 13.05% in the middle range of the companies in the industry of Utilities - Independent Power Producers. Overall, GuruFocus ranks Brookfield Renewable Partners LP's profitability as fair. This is the revenue and net income of Brookfield Renewable Partners LP 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 Brookfield Renewable Partners LP is 9.3%, which ranks better than 72% of the companies in the industry of Utilities - Independent Power Producers. The 3-year average EBITDA growth rate is 7.6%, which ranks in the middle range of the companies in the industry of Utilities - Independent Power Producers.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Brookfield Renewable Partners LP's ROIC is 0.48 while its WACC came in at 3.49. The historical ROIC vs WACC comparison of Brookfield Renewable Partners LP is shown below:
In closing, Brookfield Renewable Partners LP (NYSE:BEP, 30-year Financials) stock is estimated to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Utilities - Independent Power Producers. To learn more about Brookfield Renewable Partners LP stock, you can check out its 30-year Financials here.
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