Analysis of Bridgestone Corp (5108:TYO)

Bridgestone Corporation is a Japanese tire manufacturer founded in 1931. The name Bridgestone comes from the translation and transposition into English of ishibashi, meaning stone bridge in Japanese. Bridgestone is the largest tire group in the world ahead of Michelin (France), Goodyear (USA) and Continental (Germany). The company has 143,616 employees. The stock is also listed on German stock exchanges under the ticker "BGT".

Valorization

Despite its large size and leadership role, Bridgestone is paradoxically not very sought after by investors. It is trading at 12.2 times recurring earnings, 1.57 times tangible book value, 0.9 times sales and 16.47 times free cash flow. From a dividend perspective, the stock is also interesting, with a yield of 3.2%, for a conservative distribution ratio of only 39.13% relative to earnings and 52.8% relative to free cash flow. There is therefore still room to continue to increase the dividend in the future. Bridgestone has done so very regularly in the past, with an impressive average annual growth rate of 21.35% over the last five years.

Balance sheet & result

Just like the dividend, profits, cash reserves and asset values are growing over the long term, which proves the strength of Bridgestone's business model. The Japanese company is clearly managing to create value for its owners and this is reflected in the share price, which has almost tripled over the last ten years.

Cash reserves are comfortable, with a current ratio up to 2.18 and a reduced liquidity ratio of 1.53. The gross margin is down slightly, but remains correct, at 38%. The free cash flow margin is also correct, at 5,86%. As for the return on assets, it is up, at 7,28%, for an interesting cash flow profitability of assets of 10,56%.

The long-term debt ratio is certainly on the rise, but remains at quite reasonable levels, at 7.59%. Debts represent only 0.69 times equity and the Japanese company would be able to pay off all of it in just over two using its free cash flow.

Another interesting point is the number of shares in circulation which is decreasing, which is obviously profitable for shareholders since it increases their share of the pie.

Conclusion

Bridgestone is a quality company with very solid fundamentals. Its size and history speak in its favor. The price is still below its historical peaks dating back to the late 90s. I believe that the stock is slightly undervalued, around 20%. So I have just taken a position on this stock.