BT Group PLC Stock Gives Every Indication Of Being Modestly Undervalued
- By GF Value
The stock of BT Group PLC (OTCPK:BTGOF, 30-year Financials) is estimated to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $2.275 per share and the market cap of $22.7 billion, BT Group PLC stock shows every sign of being modestly undervalued. GF Value for BT Group PLC is shown in the chart below.
Because BT Group PLC is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. BT Group PLC has a cash-to-debt ratio of 0.25, which is in the middle range of the companies in Telecommunication Services industry. The overall financial strength of BT Group PLC is 4 out of 10, which indicates that the financial strength of BT Group PLC is poor. This is the debt and cash of BT Group PLC over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. BT Group PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $27.9 billion and earnings of $0.193 a share. Its operating margin is 15.38%, which ranks better than 69% of the companies in Telecommunication Services industry. Overall, the profitability of BT Group PLC is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of BT Group PLC over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of BT Group PLC is -1.5%, which ranks in the middle range of the companies in Telecommunication Services industry. The 3-year average EBITDA growth is 3.9%, which ranks in the middle range of the companies in Telecommunication Services industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, BT Group PLC's ROIC is 5.37 while its WACC came in at 5.04. The historical ROIC vs WACC comparison of BT Group PLC is shown below:
In short, BT Group PLC (OTCPK:BTGOF, 30-year Financials) stock is believed to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Telecommunication Services industry. To learn more about BT Group PLC stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
