With a daily loss of -4.03% and a three-month gain of 5.47%, Baker Hughes Co (BKR, Financial) has an Earnings Per Share (EPS) of 1.13. This raises the question: Is the stock significantly overvalued? In this article, we delve into the valuation analysis of Baker Hughes Co to provide an answer. Keep reading to discover more about this intriguing financial exploration.
Company Introduction
Baker Hughes Co is a global leader in oilfield services and oilfield equipment, with strong presences in the artificial lift, specialty chemicals, and completions markets. The company also focuses on industrial power generation, process solutions, and industrial asset management. It maintains a modest exposure to offshore oil and gas production and has high exposure to the liquid natural gas market as well as broader industrials end markets. With a current stock price of $33.14 per share, Baker Hughes Co has a market cap of $33.50 billion.
GF Value Analysis
The GF Value is a proprietary measure of a stock's intrinsic value, derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on GuruFocus' valuation method, the stock of Baker Hughes Co appears to be significantly overvalued. The company's GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on past business growth, and analyst estimates of future business performance. This suggests that the long-term return of Baker Hughes Co's stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Baker Hughes Co has a cash-to-debt ratio of 0.42, which ranks worse than 53.31% of 1026 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Baker Hughes Co's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Baker Hughes Co has been profitable 3 times over the past 10 years. Over the past twelve months, the company had a revenue of $23.30 billion and Earnings Per Share (EPS) of $1.13. Its operating margin is 9.89%, which ranks better than 53.42% of 979 companies in the Oil & Gas industry. Overall, GuruFocus ranks the profitability of Baker Hughes Co at 4 out of 10, indicating poor profitability.
Growth is a crucial factor in the valuation of a company. Baker Hughes Co's 3-year average revenue growth rate is worse than 89.88% of 860 companies in the Oil & Gas industry. The company's 3-year average EBITDA growth rate is -32.1%, ranking worse than 91.16% of 826 companies in the Oil & Gas industry.
ROIC vs 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. For the past 12 months, Baker Hughes Co's return on invested capital is 5.25, and its cost of capital is 9.36.
Conclusion
Overall, Baker Hughes Co (BKR, Financial) stock appears to be significantly overvalued. The company's financial condition is fair, and its profitability is poor. Its growth ranks worse than 91.16% of 826 companies in the Oil & Gas industry. To learn more about Baker Hughes Co stock, you can check out its 30-Year Financials here.
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