What Is the Value Proposition of Bausch Health Companies (BHC) Stock?

Bausch Health Companies (BHC) stock rose by 10.76 % this afternoon. At $9.85 per share, the company is overvalued -- and potential investors should also consider the company's poor growth indicators and negative market sentiment.

Bausch Health Companies Inc. develops, manufactures and markets a range of pharmaceutical, medical device and over-the-counter (OTC) products primarily in the therapeutic areas of eye health, gastroenterology and dermatology. The small-cap Basic Materials company is based in Laval, United States.

BHC Has a Higher P/E Ratio Than the Sector Average

Compared to the Basic Materials sector's average of 10.03, Bausch Health Companies has a trailing twelve month price to earnings (P/E) ratio of 13.13 and an expected P/E ratio of 2.078. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $0.75 or forward earnings per share of $4.74.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Bausch Health Companies's P/E ratio is higher than its sector average of 10.03, we can deduce that the market is overvaluing the company's earnings.

Bausch Health Companies Is Fairly Valued in Terms of Expected Growth

Another factor pointing to Bausch Health Companies's value is its PEG ratio of 0.631. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 — but higher than 0 — its indicates that the company is faitly valued in terms of expected growth.

BHC Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Bausch Health Companies's P/B ratio of 18.78 is higher than its sector average of 2.08, such a margin of safety does not exist for the stock.

BHC Is Generating Cash

Bausch Health Companies has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of -29.736%, compared to -10.93% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of -36.32% and a coefficient of variability of 132.59644085866645%:

Date Reported Cash Flow from Operations (k) Capital Expenditures (k) Free Cash Flow (k) YoY Growth
2022-12-31 -$728,000 $220,000 -$948,000 -181.94%
2021-12-31 $1,426,000 $269,000 $1,157,000 43.02%
2020-12-31 $1,111,000 $302,000 $809,000 -34.28%
2019-12-31 $1,501,000 $270,000 $1,231,000 -8.41%
2018-12-31 $1,501,000 $157,000 $1,344,000 n/a

Bausch Health Companies Is Not a Profitable Business

If you are looking to make BHC a long term investment, its weak margins may give you cause for concern. As you can see from the below, the company is generally losing money on each sale it makes. That being said, stock prices in the short term can be independent of a company's margins, and Bausch Health Companies's management may be able to make the business profitable in the future.

Bausch Health Companies's Gross Margins

Date Reported Revenue (k) Cost of Revenue (k) Gross Margin YoY Growth
2022-12-31 $7,461,000 $4,063,000 45.54% 26.92%
2021-12-31 $6,895,000 $4,421,000 35.88% 12.3%
2020-12-31 $6,360,000 $4,328,000 31.95% 0.53%
2019-12-31 $6,952,000 $4,743,000 31.78% 10.92%
2018-12-31 $8,244,000 $5,882,000 28.65% n/a

Bausch Health Companies's Operating Margins

Date Reported Revenue (k) Operating Expenses (k) Operating Margin YoY Growth
2022-12-31 $7,461,000 $4,602,000 6.08% -6.89%
2021-12-31 $6,895,000 $5,246,000 6.53% -38.57%
2020-12-31 $6,360,000 $5,235,000 10.63% 464.04%
2019-12-31 $6,952,000 $6,625,000 -2.92% 89.9%
2018-12-31 $8,244,000 $6,275,000 -28.92% n/a

Bausch Health Companies's cost of revenue is growing at a rate of -6.812% in contrast to -5.494% for operating expenses. Sales revenues, on the other hand, have experienced a -1.51% growth rate. As a result, the average gross margins growth is 10.134 and the average operating margins growth rate is 101.696, with coefficients of variability of 18.8% and 929% respectively.

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.