Shares of Bausch + Lomb (BLCO) jumped 2.3 % during today's afternoon session. 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.
Bausch + Lomb Corporation operates as an eye health company worldwide. The mid-cap Health Care company is based in Vaughan, Canada and has 13,000 full time employees.
BLCO Has a Higher P/E Ratio Than the Sector Average
Compared to the Health Care sector's average of 24.45, Bausch + Lomb has a trailing twelve month price to earnings (P/E) ratio of -64.1 and an expected P/E ratio of 14.2. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $-0.3 or forward earnings per share of $1.35.
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 + Lomb's P/E ratio is higher than its sector average of 24.45, we can deduce that the market is overvaluing the company's earnings.
Bausch + Lomb Is Overvalued in Terms of Expected Growth
Bausch + Lomb's PEG ratio is 2.92. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in Bausch + Lomb's case, it tells us the company is overvalued.
BLCO Has an Attractive P/B Ratio
During the mid-twentieth century, value investors such as Ben Graham focused primarily on finding companies that were trading below the book value of its equity. This means companies whose market value is lower than the book value, or the sum of all of its tangible assets minus liabilities. Undervalued companies generally have a price to book (P/B) ratio below 1, and Bausch + Lomb is no exception since its P/B ratio is 0.97.
In modern times, it is increasingly rare to find companies with low P/B ratios that the equity market is avoiding without reason. Ironically, such a low P/B ratio should alert prospective investors to the existence of qualitative factors that could be contributing to its low valuation. Should no such factors exist, or if the investor is of the pure-value profile, then of course such a low P/B ratio should be added to the positive side of the stock's ledger.
BLCO Is Generating Cash
Bausch + Lomb 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 -18.9%, compared to -0.7% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of -27.6% and a coefficient of variability of 58.0%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 345,000 | -175,000 | 170,000 | -74.4 |
| 2021-12-31 | 873,000 | -209,000 | 664,000 | 152.47 |
| 2020-12-31 | 522,000 | -259,000 | 263,000 | -57.51 |
| 2019-12-31 | 799,000 | -180,000 | 619,000 | n/a |
Bausch + Lomb's Is a Profitable Business
If you are looking to make BLCO a long term investment, it's essential that you understand the viability of its business through a study of its margins. Gross margins tell you how much the company makes in profit when only the costs directly related to producing the goods or delivering the service are taken into account. Operating margins, on the other hand, factor in overhead costs so they tell you how effectively Bausch + Lomb is run.
Bausch + Lomb's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 3,768,000 | 1,519,000 | 59.69 | -2.21 |
| 2021-12-31 | 3,765,000 | 1,467,000 | 61.04 | -2.09 |
| 2020-12-31 | 3,412,000 | 1,285,000 | 62.34 | -3.91 |
| 2019-12-31 | 3,778,000 | 1,327,000 | 64.88 | n/a |
Bausch + Lomb's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 3,768,000 | 2,029,000 | 5.84 | -36.45 |
| 2021-12-31 | 3,765,000 | 1,952,000 | 9.19 | 5.27 |
| 2020-12-31 | 3,412,000 | 1,829,000 | 8.73 | -28.79 |
| 2019-12-31 | 3,778,000 | 1,988,000 | 12.26 | n/a |
Bausch + Lomb's cost of revenue is growing at a rate of 3.4% in contrast to 0.5% for operating expenses. Sales revenues, on the other hand, have experienced a -0.1% growth rate. As a result, the average gross margins growth is -2.1 and the average operating margins growth rate is -16.9, with coefficients of variability of 3.6% and 29.2% respectively.
Bausch + Lomb Benefits From Positive Market Signals
The market sentiment regarding Bausch + Lomb is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $31.03 to $26.98. BLCO is trading -33.69% away from its target price of $29.0. 14.7% of the company's shares are tied to short positions, and 13.3% of the shares are held by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-06-30 | FIL LTD | 2% | 6,543,297 | $125,827,598 |
| 2023-06-30 | Goldentree Asset Management LP | 2% | 5,796,996 | $111,476,230 |
| 2023-06-30 | Eminence Capital, LP | 2% | 5,368,375 | $103,233,848 |
| 2023-06-30 | Blackrock Inc. | 1% | 3,901,399 | $75,023,900 |
| 2023-06-30 | Icahn Carl C | 1% | 3,500,000 | $67,304,998 |
| 2023-06-30 | Maple Rock Capital Partners, Inc. | 1% | 2,887,062 | $55,518,200 |
| 2022-12-31 | Norges Bank Investment Management | 1% | 2,800,000 | $53,843,998 |
| 2023-06-30 | River Road Asset Management, LLC | 0% | 1,719,172 | $33,059,676 |
| 2023-06-30 | Nomura Holdings Inc. | 0% | 1,256,181 | $24,156,360 |
| 2023-06-30 | Laurion Capital Management, LP | 0% | 1,108,880 | $21,323,761 |
