Long-established in the Asset Management industry, Burford Capital Ltd (BUR, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a decline of 2.58%, juxtaposed with a three-month change of 20.8%. Fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Burford Capital Ltd.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 3/10
- Profitability rank: 4/10
- Growth rank: 1/10
- GF Value rank: 6/10
- Momentum rank: 6/10
Based on the above method, GuruFocus assigned Burford Capital Ltd the GF Score of 60 out of 100, which signals poor future outperformance potential.
Company Snapshot: Burford Capital Ltd
With a market cap of $3.39 billion and sales of $158.1 million, Burford Capital Ltd is a finance firm providing litigation finance, insurance, and risk transfer, law firm lending, corporate intelligence and judgment enforcement, and a wide range of investment activities. It operates in two segments: Capital provision, which is the provision of capital to the legal industry or in connection with legal matters, both directly and through investment in the group's managed funds; Asset management and other services, which includes the provision of services to the legal industry, including litigation insurance; and other corporate. The geographical segments include the United States, United Kingdom, Singapore, Hong Kong, China, and Australia.
Financial Strength Analysis
Burford Capital Ltd's financial strength indicators present some concerning insights about the company's balance sheet health. The company's low cash-to-debt ratio at 0.09 indicates a struggle in handling existing debt levels. Additionally, the company's debt-to-Ebitda ratio is 9999, which is above Joel Tillinghast's warning level of 4 and is worse than 0% of 580 companies in the Asset Management industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Profitability Analysis
Burford Capital Ltd's low Profitability rank can also raise warning signals. The company's Net Margin has declined over the past five years (-76.52%), as shown by the following data: 2018: 82.18; 2019: 64.74; 2020: 62.65; 2021: -58.11; 2022: 19.30; .
Growth Prospects
A lack of significant growth is another area where Burford Capital Ltd seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -21.8 per year over the past three years, which underperforms worse than 79.22% of 895 companies in the Asset Management industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, Burford Capital Ltd predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While Burford Capital Ltd has a rich history in the Asset Management industry, its current financial indicators and growth prospects suggest that it may struggle to maintain its historical performance. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
