BKR

What You Need to Know About Baker Hughes Company as Its Shares Soar

Shares of Baker Hughes Company (BKR) jumped 1.3 % during today's morning session, bringing their 52 week performance to -6.1%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's poor growth indicators and mixed market sentiment.

Baker Hughes Company provides a portfolio of technologies and services to energy and industrial value chain worldwide. The large-cap Industrials company is based in Houston, United States and has 56,000 full time employees.

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

Compared to the Industrials sector's average of 20.49, Baker Hughes Company has a trailing twelve month price to earnings (P/E) ratio of -238.2 and an expected P/E ratio of 14.3. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $-0.12 or forward earnings per share of $2.0.

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 Baker Hughes Company's P/E ratio is higher than its sector average of 20.49, we can deduce that the market is overvaluing the company's earnings.

Baker Hughes Company Is Fairly Valued in Terms of Expected Growth

Another factor pointing to Baker Hughes Company's value is its PEG ratio of 0.43. 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.

BKR Has an Average P/B Ratio

Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.

Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Baker Hughes Company, the P/B value is 1.97 while the average for the Industrials sector is 3.78.

BKR Is Generating Cash

Baker Hughes Company 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 -2.9%, compared to -5.7% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of -0.7% and a coefficient of variability of 46.6%:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cashflow ($ k) YoY Growth (%)
2022-12-31 1,888,000 -772,000 1,116,000 -39.12
2021-12-31 2,374,000 -541,000 1,833,000 254.55
2020-12-31 1,304,000 -787,000 517,000 -55.04
2019-12-31 2,126,000 -976,000 1,150,000 n/a

Baker Hughes Company Is Not a Profitable Business

If you are looking to make BKR 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 Baker Hughes Company's management may be able to make the business profitable in the future.

Baker Hughes Company's Gross Margins

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2022-12-31 21,156,000 16,756,000 20.8 5.48
2021-12-31 20,536,000 16,487,000 19.72 27.64
2020-12-31 20,705,000 17,506,000 15.45 -16.89
2019-12-31 23,838,000 19,406,000 18.59 n/a

Baker Hughes Company's Operating Margins

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2022-12-31 21,156,000 2,510,000 8.93 16.12
2021-12-31 20,536,000 2,470,000 7.69 100.26
2020-12-31 20,705,000 2,404,000 3.84 -42.77
2019-12-31 23,838,000 2,832,000 6.71 n/a

Baker Hughes Company's cost of revenue is growing at a rate of -3.6% in contrast to -3.0% for operating expenses. Sales revenues, on the other hand, have experienced a -2.9% growth rate. As a result, the average gross margins growth is 2.8 and the average operating margins growth rate is 7.4, with coefficients of variability of 12.4% and 31.9% respectively.

Baker Hughes Company Benefits From Positive Market Signals

The market sentiment regarding Baker Hughes Company is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $43.0 to $27.0. BKR is trading -22.54% away from its target price of $36.91. 2.1% of the company's shares are tied to short positions, and 98.4% of the shares are held by institutional investors.

Date Reported Holder Percentage Shares Value
2022-12-31 Vanguard Group, Inc. (The) 14% 119,934,155 $3,428,917,509
2022-12-31 Capital Research Global Investors 14% 116,385,242 $3,327,454,086
2022-12-31 Capital World Investors 12% 101,969,526 $2,915,308,763
2022-12-31 Blackrock Inc. 11% 88,851,995 $2,540,278,550
2022-12-31 State Street Corporation 8% 67,108,128 $1,918,621,389
2022-12-31 JP Morgan Chase & Company 6% 50,545,317 $1,445,090,620
2022-12-31 Dodge & Cox Inc 4% 31,006,837 $886,485,474
2022-12-31 Geode Capital Management, LLC 3% 20,895,357 $597,398,259
2022-12-31 FIL LTD 2% 20,721,869 $592,438,237
2022-12-31 FMR, LLC 2% 19,105,083 $546,214,325
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.

IN FOCUS