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– By GF value
The stock of Brighthouse Financial (NAS: BHF, 30 years Financials) would be slightly overvalued, according to the calculation of GuruFocus Value. The GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, past business growth, and analysts’ estimates of future business performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 45.335 per share and market cap of $ 4 billion, Brighthouse Financial stock gives every indication that it is slightly overvalued. The GF value for Brighthouse Financial is shown in the table below.
Given that Brighthouse Financial is relatively overvalued, the long-term performance of its stocks will likely be lower than the growth of its business, which has averaged 6.5% over the past three years and is expected to grow by 3.82 % per year over the next three to five years.
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Companies with poor financial strength present investors with a high risk of permanent capital loss. To avoid a permanent loss of capital, an investor should do his research and consider the financial strength of a company before deciding to buy stocks. A company’s cash-to-debt ratio and interest coverage is a great way to understand its financial strength. Brighthouse Financial has a cash-to-debt ratio of 1.20, which is around the average for companies in the insurance industry. The overall financial strength of Brighthouse Financial is 3 out of 10, indicating that the financial strength of Brighthouse Financial is poor. Here is Brighthouse Financial’s debt and liquidity over the past few years:
It is less risky to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A business with high profit margins is also generally a safer investment than a business with low profit margins. Brighthouse Financial has been profitable 3 in the past 10 years. In the past twelve months, the company posted sales of $ 8.2 billion and a loss of $ 18.327 per share. Its operating margin is 0.00%, which ranks it in the bottom 10% of companies in the insurance industry. Overall, GuruFocus ranks Brighthouse Financial’s profitability as 4 out of 10, indicating low profitability. Here is Brighthouse Financial’s sales and net income for the past few years:
Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely linked to a company’s long-term market performance. A faster growing business creates more shareholder value, especially if the growth is profitable. Brighthouse Financial’s average annual revenue growth over 3 years is 6.5%, which ranks among the average for companies in the insurance industry. The 3-year average EBITDA growth rate is -40.5%, which ranks in the bottom 10% of companies in the insurance industry.
Another way to determine a company’s profitability is to compare its return on invested capital to the weighted average cost of capital. Return on Invested Capital (ROIC) measures how well a business 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 should pay on average to all of its security holders to finance its assets. When the ROIC is higher than the WACC, it implies that the company creates value for the shareholders. Over the past 12 months, Brighthouse Financial’s return on invested capital is -0.41, and its cost of capital is 7.09. Brighthouse Financial’s historical ROIC vs WACC comparison is shown below:
To conclude, the stock of Brighthouse Financial (NAS: BHF, 30 years Financials) is estimated to be slightly overvalued. The company’s financial situation is bad and its profitability is bad. Its growth ranks among the bottom 10% of companies in the insurance sector. To learn more about Brighthouse Financial’s shares, you can view its 30-year financial data here.
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This article first appeared on GuruFocus.
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