Brookfield Business Partners LP (BBU, Financial) recently experienced a daily loss of 5.9%, contributing to a 3-month decline of 17.36%. Despite these fluctuations, the company boasts an Earnings Per Share (EPS) of 6.38. This analysis seeks to determine if the current stock price reflects the company's intrinsic value, considering its recent performance.
Understanding the valuation of Brookfield Business Partners LP is crucial for investors considering this stock. The following sections will delve into the company's business operations, financial strength, and growth prospects to provide a comprehensive valuation analysis.
Company Overview
Brookfield Business Partners LP operates primarily in business services and industrials, focusing on sectors where they can be a low-cost producer or benefit from high barriers to entry. The company's major revenue comes from its Business Services segment, with significant operations in the United Kingdom, and a presence in the USA, Europe, Australia, Canada, Brazil, Mexico, and other countries. At its current price of $18.56, and with a market cap of $1.40 billion, we compare the stock price to the GF Value of $20.31, which suggests the stock might be fairly valued.
Understanding GF Value
The GF Value is a proprietary measure reflecting the true value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor from past performance, and future business performance estimates. For Brookfield Business Partners LP, the GF Value suggests that the stock is fairly priced around its current market value. This assessment aligns with our analysis that the stock price will likely hover around this valuation, providing stability unless significant business developments occur.
Financial Strength and Risk
Investors must consider a company's financial health before investing, and Brookfield Business Partners LP's cash-to-debt ratio of 0.09 indicates a position weaker than many of its peers, ranking lower than 86.83% of companies in the Conglomerates industry. This low ratio suggests a potential risk in terms of financial stability and debt management.
Profitability and Growth Prospects
Brookfield Business Partners LP has shown profitability in 6 out of the last 10 years, with a recent annual revenue of $53.30 billion and an operating margin that outperforms 55.31% of its industry peers. The company's growth has been robust, with an 18.2% average annual revenue increase, positioning it well within its sector. Additionally, the 3-year average EBITDA growth rate stands at 24%, reflecting a strong potential for future profitability.
ROIC vs. WACC
Comparing the Return on Invested Capital (ROIC) of 4.79 to the Weighted Average Cost of Capital (WACC) of 7.72 shows that the company is currently not generating adequate returns on its investments, which could be a concern for value creation in the long term.
Conclusion
While Brookfield Business Partners LP appears to be fairly valued at the current price, its financial strength raises some concerns that potential investors should consider. The company's profitability and growth metrics, however, suggest a potential for value appreciation. For a more detailed financial overview, potential investors can review the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
