Bayer Stock Analysis

Key takeaways:
-Bayer AG ended 4 of the last 12 quarters with a loss
-BAYN.DE stock is an extremely risky investment
-The company`s financial position is weak
-Viable options for investing in German Stocks

Our congratulations to Leverkusen on winning the first German championship in Bayer’s history. The team from a city with a population of just over 160 thousand people not only won the first trophy but also set a record unbeaten streak for Europe — 51 games. A huge achievement!

The owner of the team is the chemical and pharmaceutical concern Bayer AG and their financial metrics are very far from such records and titles. We updated our assessment of the company On May 21, and today we will try to answer the question, is it worth investing in Bayer stocks?

Is Bayer a viable investment?

No. In this matter, in our opinion, everything is so obvious that there can be no variations on the theme. To be objective, let’s use our proprietary assessment of the company’s business and calculate the Eyestock rating based on 10 economic parameters.

Financial performance is poor

Bayer ended 4 of the last 12 quarters with a loss, and the net loss over the last 12 months amounted to 3.1 billion euros. The company’s production itself is quite profitable because the gross margin is at a fairly respectable level of 59%. But half of the 2023 gross profit went to selling expenses, signaling the company’s precarious position in the market. Another 20% was taken by research and development expenses, which is quite normal for such an industry. Other operating expenses, almost entirely consisting of Impairment losses on goodwill, amounted to $8.8 billion. These data can be found in the annual financial report on the company’s website.

With such indicators, there is no need to talk about competitive advantage and a high level of financial performance. In general, after the purchase of the chemical company Monsanto in 2018 for $63 billion from a German company, difficult times began. For a minute, the concern’s capitalization is now only $29 billion.

Financial position is weak

The company’s balance sheet is quite weak in all respects. If you look at traditional methods, Bayer`s debt is 46.3 billion euros and exceeds the company’s equity by 1.33 times. This debt can only be repaid by the full use of the annual revenue. Real cash flows from operating activities are not enough to cover even a seventh of the debt.

Efficiency is negative

When a company is operating at a loss, it is difficult to evaluate efficiency. ROE is negative. ROA is negative. The return on invested capital is naturally negative too. And even during the period of generating profits since 2018, it has not risen above 7%. In general, such a level of return rates is a clear sign of problems with the business model. The company is in long-term restructuring and is looking for ways to return to a decent level. But so far it’s in vain.

As a result, Bayer received a negative Eyestock Rating of -7% on our scale. What does it mean? The outstanding company to invest in usually has 100%, and 0% is the point at which investment attractiveness begins. A negative rating is a negative answer to the question of whether Bayer shares are worth considering for an investment portfolio.

Is Bayer’s stock undervalued?

In general, after studying the fundamental indicators, the actual assessment of Bayer’s value should have been eliminated. But if you still doubt and expect that maybe they are at least super cheap, then you will be disappointed here too. Given the negative EPS over the past 12 months, it is not possible to calculate a key valuation relative ratio — price-to-earnings ratio. Of the last 20 periods, this happened 11 times — that is, more than half. In such cases we usually conclude that valuation analysis is not available.

The situation with German stocks: Eyestock spotlight

In general, if you are considering investing specifically in German equities, then the situation is somewhat complicated. Of the 331 companies for which we gave a quality rating, only 9 have a high rating (more than 100) and another 110 have an average rating (more than 50).

Among the viable investments we can highlight the following options:

Information Technology sector:
Atoss Software AG — AOF.DE
Nemetschek SE — NEM.DE
Aixtron SE — AIXA.DE

Industrials:
Rational AG — RAA.DE
Energiekontor AG — EKT.DE

Discover these stocks’ fundamental analysis: start YOUR FREE ACCOUNT and get the ratings and valuation levels to buy!