Unveiling Baytex Energy (BTE)'s Value: Is It Really Priced Right? A Comprehensive Guide
Baytex Energy Corp (NYSE:BTE) experienced a daily loss of -5.91%, despite a 3-month gain of 31.35%. With an Earnings Per Share (EPS) of 1.15, the question arises: is the stock fairly valued? In this article, we'll delve into a comprehensive valuation analysis of Baytex Energy, providing you with the insights you need to make informed investment decisions.
Baytex Energy Corp (NYSE:BTE): A Snapshot
Baytex Energy Corp is an oil and gas company with operations predominantly in Canada and the United States. The company's primary revenue source is from Canada, with extensive exploration, development, and production of crude oil and natural gas in Western Canada. As of October 02, 2023, the company's market cap stands at $3.60 billion, with sales amounting to $1.90 billion. The stock price is $4.15, while the GF Value, our proprietary estimation of fair value, is $3.91. This comparison lays the groundwork for a deeper exploration of Baytex Energy's value.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, the stock may be overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on our valuation method, Baytex Energy (NYSE:BTE) is believed to be fairly valued. The stock's fair value is estimated considering three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $4.15 per share, Baytex Energy stock is believed to be fairly valued. As Baytex Energy is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Baytex Energy's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this risk, investors must review a company's financial strength before purchasing shares. Two key indicators of financial strength are the cash-to-debt ratio and interest coverage. Baytex Energy has a cash-to-debt ratio of 0.01, ranking worse than 95.61% of 1026 companies in the Oil & Gas industry. The overall financial strength of Baytex Energy is 4 out of 10, indicating that its financial strength is poor.
Profitability and Growth of Baytex Energy
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Baytex Energy has been profitable 4 years over the past 10 years. During the past 12 months, the company had revenues of $1.90 billion and Earnings Per Share (EPS) of $1.15. Its operating margin of 21.83% is better than 69.56% of 979 companies in the Oil & Gas industry. Overall, GuruFocus ranks Baytex Energy's profitability as poor.
Growth is a crucial factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Baytex Energy is 16.5%, ranking better than 62.33% of 860 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 26.5%, ranking better than 63.56% of 826 companies in the Oil & Gas industry.
ROIC vs WACC
A company's profitability can also be evaluated 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 ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Baytex Energy's ROIC was 11.26 while its WACC came in at 17.32.
Conclusion
In conclusion, Baytex Energy (NYSE:BTE) is believed to be fairly valued. The company's financial condition is poor, and its profitability is poor. However, its growth ranks better than 63.56% of 826 companies in the Oil & Gas industry. To learn more about Baytex Energy stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
