The stock of Berry Global Group (NYSE:BERY, 30-year Financials) is believed to be fairly valued, 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 $67.01 per share and the market cap of $9 billion, Berry Global Group stock is estimated to be fairly valued. GF Value for Berry Global Group is shown in the chart below.
Because Berry Global Group is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 17.4% over the past three years and is estimated to grow 4.09% annually over the next three to five years.
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. Berry Global Group has a cash-to-debt ratio of 0.08, which is worse than 83% of the companies in Packaging & Containers industry. GuruFocus ranks the overall financial strength of Berry Global Group at 4 out of 10, which indicates that the financial strength of Berry Global Group is poor. This is the debt and cash of Berry Global 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. Berry Global Group has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $12.4 billion and earnings of $5.14 a share. Its operating margin of 11.37% better than 73% of the companies in Packaging & Containers industry. Overall, GuruFocus ranks Berry Global Group’s profitability as fair. This is the revenue and net income of Berry Global Group over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Berry Global Group’s 3-year average revenue growth rate is better than 90% of the companies in Packaging & Containers industry. Berry Global Group’s 3-year average EBITDA growth rate is 16.4%, which ranks better than 76% of the companies in Packaging & Containers industry.
Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Berry Global Group’s ROIC was 7.51, while its WACC came in at 6.10. The historical ROIC vs WACC comparison of Berry Global Group is shown below:
In conclusion, the stock of Berry Global Group (NYSE:BERY, 30-year Financials) is believed to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 76% of the companies in Packaging & Containers industry. To learn more about Berry Global Group stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.