Shares of Baker Hughes Company (BKR) jumped 3.4 % during today's afternoon session, bringing their 52 week performance to 1.1%. 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 -256.5 and an expected P/E ratio of 15.2. 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 $2.02.
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 0.46. 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 2.12 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.
We See Mixed Market Signals Regarding BKR
Baker Hughes Company has an average rating of buy and target prices ranging from $43.0 to $30.0. At its current price of $30.78, the company is trading -16.93% away from its target price of $37.05. 2.4% of the company's shares are linked to short positions, and 98.4% of the shares are owned by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-03-31 | Vanguard Group, Inc. (The) | 12% | 121,799,511 | $3,748,684,468 |
| 2023-03-31 | Capital Research Global Investors | 10% | 99,952,330 | $3,076,282,851 |
| 2023-03-31 | Capital World Investors | 9% | 95,418,443 | $2,936,741,143 |
| 2023-03-31 | Blackrock Inc. | 9% | 91,242,708 | $2,808,222,459 |
| 2023-03-31 | State Street Corporation | 7% | 67,473,141 | $2,076,654,607 |
| 2023-03-31 | JP Morgan Chase & Company | 5% | 51,167,608 | $1,574,811,063 |
| 2023-03-31 | Dodge & Cox Inc | 3% | 34,072,354 | $1,048,661,880 |
| 2023-03-31 | FIL LTD | 2% | 22,159,463 | $682,012,875 |
| 2023-03-31 | Geode Capital Management, LLC | 2% | 21,391,034 | $658,362,552 |
| 2023-03-31 | FMR, LLC | 2% | 15,920,997 | $490,008,487 |
