With an average analyst rating of buy, Banco Bilbao Vizcaya Argentaria is clearly an analyst favorite. But the analysts could be wrong. Is BBVA overvalued at today's price of $15.51? Let's take a closer look at the fundamentals to find out.
Banco Bilbao Vizcaya Argentaria has a P/E ratio of 7.8 based on its 12 month trailing earnings per share of $1.98. Considering its future earnings estimates of $1.6 per share, the stock's forward P/E ratio is 9.7. In comparison, the average P/E ratio of the Finance sector is 15.92 and the average P/E ratio of the S&P 500 is 29.3.
We can also compare the ratio of Banco Bilbao Vizcaya Argentaria's market price to its book value, which gives us the price to book, or P/B ratio. A company's book value refers to its present equity value -- or what is left over when we subtract its liabilities from its assets. BBVA has a P/B ratio of 1.62, with any figure close to or below one indicating a potentially undervalued company.
Now we turn to the actual cash that Banco Bilbao Vizcaya Argentaria has on hand after all of its inflows and outflows of capital have been accounted for -- including non business related items such as the cost of maintaining its debt. This final bottom line is called levered free cash flow, and for Banco Bilbao Vizcaya Argentaria it stands at -$18.19 Billion. This negative cash flow could mean the company may not be able to sustain its 4.6% dividend for much longer.
At Market Inference, we will keep monitoring Banco Bilbao Vizcaya Argentaria to see if the analysts were right to recommend the stock despite its valuation issues. We recognize that numbers don't always tell the whole story, and that qualitative factors often set high performing investments apart from the rest.
