Here's Why Biglari (BH) Might Be a Value Play

Biglari was one of the market's biggest losers today, losing -3.1% of its value and underperforming the S&P 500 and Dow Industrial composite indices by -2.0% and -2.5% respectively. The small-cap Consumer Cyclical company ended the day at $163.46, but is still well above its 52 week low of $110.56 Over the last 12 months, Biglari is up 43.4%, and has outperformed the S&P 500 by 51.8%.

Biglari does not publish its forward or trailing price to earnings (P/E) ratio because the stock has negative forward and trailing earnings per share (EPS) values at $-7.45 and $-116.66 respectively. Since P/E ratios are share price divided by earnings per share, Biglari has a negative P/E ratio, which is not meaningful besides the fact that it indicates the company is not currently profitable.

When it comes to new businesses -- especially those operating within the technology sector -- investors are often willing to overlook prolonged periods of negative earnings and inflated valuations. But not so in the Consumer Cyclical sector, which has an average P/E ratio of 24.11. If Biglari cannot improve its earnings picture soon, it's unlikely that investors will stay onboard -- unless there are other factors in favor of the business's outlook.

We can also understand a stock's valuation by looking at its Price to Book (P/B) Ratio, which is its share price divided by its book value per share. The book value refers to the present value of the company if it were liquidated today. Biglari's P/B ratio of 0.2 indicates that the market value of the company is less than its market value, which indicates the company is potentially undervalued.

To understand Biglari's business, and therefore its attractiveness as a potential investment, we must analyze its margins in two steps. First, we look at its gross margins, which take into account only the direct cost of providing the product or service to the customer. This enables us to determine whether the company benefits from an advantageous market position:

Date Reported Revenue ($ MM) Cost of Revenue ($ MM) Gross Margins (%) YoY Growth (%)
2021-12-31 366 223 39 23.5
2020-12-31 434 297 31.58 56.26
2019-12-31 669 534 20.21 n/a
  • Average gross margins: 30.3 %
  • Average gross margins growth rate: 39.9 %
  • Coefficient of variability (lower numbers indicate more stability): 31.3 %

Next, we consider the Biglari's operating margins, which take into account overhead. This tells us whether the company's business model is fundamentally profitable or not:

Date Reported Total Revenue ($ MM) Operating Expenses ($ MM) Operating Margins (%) YoY Growth (%)
2021-12-31 366 106 10.03 53.36
2020-12-31 434 109 6.54 697.56
2019-12-31 669 130 0.82 n/a
  • Average operating margins: 5.8 %
  • Average operating margins growth rate: 375.5 %
  • Coefficient of variability (lower numbers indicate more stability): 80.2 %

Since both Biglari's gross margins and operating margins tend to be positive, we know that its business is currently profitable. However, it's important to take into account their variability and overall growth trend to make a definitive conclusion regarding the company's strength.

To get a better idea of Biglari's finances, we will now look at its cash flows. Often touted as a general yardstick for a company's financial health, cash flows represent the sum of inflows and outflows of cash from all sources, including capital expenditures:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2021-12-31 229 -65 164 69.55
2020-12-31 118 -21 97 27.43
2019-12-31 94 -18 76 n/a
  • Average free cash flow: $164,218,000.00
  • Average free cash flow growth rate: 48.5 %
  • Coefficient of variability (lower numbers indicating more stability): 41.0%

Free cash flow represents the money that Biglari can use to either reinvest in the business or to reward its investors in the form of a dividend. Despite the company's recent cash flows being in the green, investors do not currently receive a dividend.

Overall, Biglari seems to be a strong business with an attractive valuation in numeric terms. Potential investors may want to take a closer look at the stock, and focus on whether it also has qualitative factors that show that it can provide solid returns.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.