Overvalued…
Bristow Group Inc (NYSE:BRS) owns and leases helicopters to deep sea oil drillers. They basically fly staff, equipment, supplies, or other needed items to the oil wells and back to land again. The company does have recurring revenues, which means regardless of hurricanes or other setbacks, the company still makes money. In reality, these events could help the company, because helicopters are grounded, and there are fewer expenses involved.
Bristow Group however, is not a high-return business. Their ROE is only about 6%. With book value around $43/share, the company is trading at around $58. Even with the company being overvalued right now, if the stock drops back to the low $40s, investors might consider buying into the business.
I probably won’t make many fans when I tell you Netflix, Inc. (NASDAQ:NFLX) is overvalued, but that is my belief despite the promising metrics. The company has had an amazing run recently, increasing approximately $80/share year-to-date. Netflix now owns exclusive content with House of Cards, and have been investing heavily in these type of products. However, they are not unmatched by companies like Amazon.com, Inc. (NASDAQ:AMZN).
This is a very difficult business for Netflix to be in right now as companies with much larger cash balances and purchasing power are making huge investments. Netflix is doing a tremendous job right now, but I still believe its overvalued. Here is why.
Any mistake Netflix makes will be punished severely by the marketplace. They would have to be perfect in order to maintain their value. While they could achieve this, the upside/downside ratio right now is too much for my personal liking. The company has a wide customer base at this point, but earnings and free cash flow are minimal. FCF yield for the company is slightly above .5%. The company may be a victim of their own success, because the more customers they acquire, the more content providers are going to demand for movies.
The Foolish Conclusion…
From voice command companies like Nuance, to financial companies like AIG, there are a variety of seemingly undervalued companies available. While Netflix is performing well right now, the slightest slip up could send it spiraling downward. Bristow Group is priced well over book value, but may see prices drop soon. Keep an eye on all of these companies as we move forward — these valuations could change quickly.
The article Undervalued or Overvalued: The Answer Might Surprise You originally appeared on Fool.com and is written by Tyler Wofford.
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