Should We Follow the Recent CEO Buy of Dresser-Rand Group Inc. (DRC)? – General Electric Company (GE)

A relatively reasonable valuation

At a trading price of nearly $59 per share, its total market cap is around $4.5 billion. The market is valuing Dresser-Rand Group Inc. (NYSE:DRC) at nearly 12.5 times EV/EBITDA. Compared to its peers including Siemens AG (ADR) (NYSE:SI) and General Electric Company (NYSE:GE), Dresser-Rand is the smallest company. Siemens is trading at around $110 per share, with a total market cap of nearly $92 billion. It is valued at a much cheaper valuation at 8.26 times EV/EBITDA. General Electric Company (NYSE:GE), at $24 per share, is worth nearly $246 billion. The company has the most expensive valuation among the three, at 20.24 times EV/EBITDA.

In terms of profitability, Dresser-Rand seems to be the most profitable company, generating 12.46% operating margin. Siemens has the lowest operating margin at 9% while the operating margin of General Electric is nearly 12.2%. Furthermore, Dresser-Rand also delivered the highest return on capital of 84.8% in 2012, whereas the return on capital of Siemens and General Electric Company (NYSE:GE) were only 69.7% and 6.2%, respectively.

Foolish takeaway

Quantitatively speaking, Dresser-Rand Group Inc. (NYSE:DRC) seems to be a decent pick at its current price, due to a high operating margin and return on capital, a relatively reasonable valuation and recent insider buys. However, as the company had a negative tangible equity and high goodwill/intangible assets, I would personally demand a much cheaper valuation before initiating a long position in this company.

The article Should We Follow the Recent CEO Buy of Dresser-Grand? originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.