CIBC and BMO Capital have both highlighted Brookfield Business Partners (NYSE:BBU) with fresh Outperform ratings, drawing attention to its track record, ties to the broader Brookfield group, and current valuation.
See our latest analysis for Brookfield Business Partners.
At around US$34.08, Brookfield Business Partners has seen short term share price pressure, with a 1-day share price return of 1.70% decline and a year to date share price return of 4.88% decline. However, its 1-year total shareholder return of 37.06% and 3-year total shareholder return of 88.93% point to stronger momentum over a longer holding period. This helps frame why fresh research coverage and renewed attention to valuation are front of mind for investors.
If analyst interest in BBU has you thinking about what else might be setting up for a re rating, it could be a good moment to scan 19 top founder-led companies as a starting list of ideas.
With the units trading around US$34.08, at a double digit discount to recent analyst targets and reflecting a mix of recent share price pressure and strong multi year returns, is this a genuine value opportunity or is the market already pricing in future growth?
Preferred Price-to-Sales Multiple of 0.3x: Is It Justified?
At around $34.08 per unit, Brookfield Business Partners is trading on a P/S of roughly 0.3x, which screens as inexpensive against several benchmarks, although there are some clear trade offs in the fundamentals behind that number.
The P/S ratio compares the company’s market value to its revenue, so a 0.3x multiple means investors are currently paying about $0.30 for each $1 of annual sales. For a global private equity operator with exposure to business services, infrastructure services, construction, energy and industrials, revenue can be large while reported earnings move around. As a result, sales based yardsticks are often used as a quick sense check.
On that quick check, the units look cheap against the wider Global Industrials industry average P/S of 0.9x and even more so versus a peer average of 2.1x. This suggests the market is assigning a much lower value to each dollar of BBU’s revenue than to many comparable names. However, our fair P/S estimate sits lower at around 0.2x. This implies that while BBU screens as good value against peers and the broader sector, the multiple is expensive relative to where our model suggests it could settle if pricing moved closer to that fair ratio level.
Explore the SWS fair ratio for Brookfield Business Partners
Result: Price-to-Sales of 0.3x (UNDERVALUED)
However, you also need to weigh risks, such as an annual revenue decline of 38.79% and recent net income of a US$26 loss, which could pressure sentiment.
Find out about the key risks to this Brookfield Business Partners narrative.
Another View: What Does The SWS DCF Model Say?
If the 0.3x P/S leaves you torn between peer comparisons and the fair ratio, our DCF model offers a different perspective. On that approach, BBU at $34.08 is compared with an estimated future cash flow value of $109.76.
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Brookfield Business Partners for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 46 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
Mixed signals or a clear setup, either way it pays to move quickly, review the full data, and consider 1 key reward and 2 important warning signs for yourself.
Looking for more investment ideas?
If BBU has caught your attention, do not stop there. A few minutes with the right screeners can surface opportunities you will not want to miss.
- Target steadier opportunities by scanning companies in our 74 resilient stocks with low risk scores. This lets you focus on businesses with lower risk scores and potentially fewer surprises.
- Hunt for potential mispricings with our 46 high quality undervalued stocks. It is built to spotlight companies that pair solid fundamentals with prices that may not fully reflect them.
- Build a watchlist of future contenders using the screener containing 24 high quality undiscovered gems. Here we highlight high quality names that may not yet be widely followed.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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