The stock of B&G Foods (NYSE:BGS, 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 $33.9605 per share and the market cap of $2.2 billion, B&G Foods stock shows every sign of being modestly overvalued. GF Value for B&G Foods is shown in the chart below.
Because B&G Foods is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 7.3% over the past three years and is estimated to grow 1.97% annually over the next three to 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. B&G Foods has a cash-to-debt ratio of 0.02, which ranks in the bottom 10% of the companies in the industry of Consumer Packaged Goods. Based on this, GuruFocus ranks B&G Foods's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of B&G Foods over the past years:
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. B&G Foods has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2 billion and earnings of $2.02 a share. Its operating margin is 13.75%, which ranks better than 80% of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of B&G Foods is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of B&G Foods 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 B&G Foods is 7.3%, which ranks better than 69% of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth rate is 8.2%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods.
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, B&G Foods's ROIC is 6.45 while its WACC came in at 3.07.
To conclude, the stock of B&G Foods (NYSE:BGS, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Consumer Packaged Goods. To learn more about B&G Foods stock, you can check out its 30-year Financials here.
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