The stock of Bauer AG (GREY:BRAGF, 30-year Financials) gives every indication of being possible value trap, 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 $13.43 per share and the market cap of $294.5 million, Bauer AG stock gives every indication of being possible value trap. GF Value for Bauer AG is shown in the chart below.
The reason we think that Bauer AG stock might be a value trap is because Bauer AG has an Altman Z-score of 1.03, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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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. Bauer AG has a cash-to-debt ratio of 10000.00, which ranks better than 100% of the companies in Construction industry. Based on this, GuruFocus ranks Bauer AG's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Bauer AG 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. Bauer AG has been profitable 8 years over the past 10 years. During the past 12 months, the company had revenues of $1.5 billion and loss of $2.455 a share. Its operating margin of 0.34% worse than 76% of the companies in Construction industry. Overall, GuruFocus ranks Bauer AG's profitability as fair. This is the revenue and net income of Bauer AG 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. Bauer AG's 3-year average revenue growth rate is in the middle range of the companies in Construction industry. Bauer AG's 3-year average EBITDA growth rate is -6.6%, which ranks worse than 70% of the companies in Construction industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Bauer AG's return on invested capital is 0.44, and its cost of capital is 10.09. The historical ROIC vs WACC comparison of Bauer AG is shown below:
In short, the stock of Bauer AG (GREY:BRAGF, 30-year Financials) shows every sign of being possible value trap. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 70% of the companies in Construction industry. To learn more about Bauer AG stock, you can check out its 30-year Financials here.
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