Baker Hughes Company (BKR) Price Drops. What Do the Numbers Tell Us?

Baker Hughes Company was one of the market's biggest losers today, losing 4.4% of its value and underperforming both the S&P500 and Dow Industrial composite indices by 0.0%. The large-cap Industrials company ended the day at $33.14, but is still well above its 52 week low of $26.12 and is 20.22% below its average target price of $41.54. Over the last 12 months, Baker Hughes Company is up 12.0%, and has underperformed the S&P 500 by 3.0%. The stock has an average analyst rating of buy.

Baker Hughes Company has a trailing 12 month price to earnings (P/E) ratio of 19.8, which corresponds to its share price divided by its trailing earnings per share (EPS) of $1.67. The company's forward P/E ratio is 15.9 based on its forward EPS of $2.08.

Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. By way of comparison, the Industrials sector has historically had an average P/E ratio of 20.49. Whether the company's P/E ratio is within a high or low range tells us how investors are currently valuing the stock's earning potential, but it doesn't tell us how its price will move in the future.

Another metric for valuing a stock is 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 sum of all of the company's tangible assets and liabilities. Baker Hughes Company's P/B ratio of 2.19 indicates that the company is fairly valued when compared to the Industrials sector's average P/B ratio of 3.78.

To understand Baker Hughes Company'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 ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2023 23,305,000 19,971,000 14 133.33
2022 21,156,000 19,971,000 6 0.0
2021 20,502,000 19,192,000 6 107.79
2020 20,705,000 36,683,000 -77 -1640.0
2019 23,838,000 22,764,000 5 66.67
2018 22,877,000 22,176,000 3
  • Average gross margins: -7.2 %
  • Average gross margins growth rate: 29.7 %
  • Coefficient of variability (lower numbers indicate more stability): 10737.1 %

Next, we consider the Baker Hughes Company'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 ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2023 23,305,000 19,971,000 8 33.33
2022 21,156,000 19,971,000 6 0.0
2021 20,502,000 19,192,000 6 108.22
2020 20,705,000 36,683,000 -73 -1560.0
2019 23,838,000 22,764,000 5 66.67
2018 22,877,000 22,176,000 3
  • Average operating margins: -7.5 %
  • Average operating margins growth rate: 18.0 %
  • Coefficient of variability (lower numbers indicate more stability): 9627.3 %

From the above, we can see that Baker Hughes Company is not a profitable business. While unprofitable businesses may provide shareholders with attractive short term returns, more conservative investors will prefer to wait until the business can reach a profit before committing.

Our final point of analysis is Baker Hughes Company's free cash flow. While earnings and margins are calculated on the basis of a company's delivered goods, they do not actually represent physical payments that flow into the coffers. The actually money that the company has -- minus its capital expenditures -- is reported as its free cash flow, which for Baker Hughes Company is as follows:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023 2,815,000 1,082,000 1,733,000 92.77
2022 1,888,000 989,000 899,000 -40.78
2021 2,374,000 856,000 1,518,000 360.0
2020 1,304,000 974,000 330,000 -62.75
2019 2,126,000 1,240,000 886,000 15.51
2018 1,762,000 995,000 767,000
  • Average free cash flow: $1.73 Billion
  • Average free cash flow growth rate: 14.6 %
  • Coefficient of variability (lower numbers indicating more stability): 281.9%

This is the pool of liquidity that the company can use to reinvest in its business and to pay its equity investors a dividend. Investors in Baker Hughes Company enjoy a dividend yield of 2.2%, and they can expect this to continue based on the company's positive cash flows.

Overall, Baker Hughes Company 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.