- By GF Value
The stock of B&M European Value Retail SA (OTCPK:BMRRY, 30-year Financials) appears to be modestly undervalued, 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 $29.988 per share and the market cap of $7.5 billion, B&M European Value Retail SA stock appears to be modestly undervalued. GF Value for B&M European Value Retail SA is shown in the chart below.
Because B&M European Value Retail SA is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 16.2% over the past three years and is estimated to grow 10.27% annually over the next three to five years.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. B&M European Value Retail SA has a cash-to-debt ratio of 0.21, which is in the middle range of the companies in the industry of Retail - Defensive. The overall financial strength of B&M European Value Retail SA is 5 out of 10, which indicates that the financial strength of B&M European Value Retail SA is fair. This is the debt and cash of B&M European Value Retail SA over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. B&M European Value Retail SA has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $5.4 billion and earnings of $1.345 a share. Its operating margin is 10.60%, which ranks better than 91% of the companies in the industry of Retail - Defensive. Overall, GuruFocus ranks the profitability of B&M European Value Retail SA at 7 out of 10, which indicates fair profitability. This is the revenue and net income of B&M European Value Retail SA 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of B&M European Value Retail SA is 16.2%, which ranks better than 86% of the companies in the industry of Retail - Defensive. The 3-year average EBITDA growth rate is 34.1%, which ranks better than 84% of the companies in the industry of Retail - Defensive.
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, B&M European Value Retail SA's return on invested capital is 12.43, and its cost of capital is 4.88. The historical ROIC vs WACC comparison of B&M European Value Retail SA is shown below:
Overall, B&M European Value Retail SA (OTCPK:BMRRY, 30-year Financials) stock is believed to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 84% of the companies in the industry of Retail - Defensive. To learn more about B&M European Value Retail SA stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.