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Ardmore Shipping Stock Gives Every Indication Of Being Modestly Undervalued

- By GF Value

The stock of Ardmore Shipping (NYSE:ASC, 30-year Financials) is believed to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $4.98 per share and the market cap of $165.7 million, Ardmore Shipping stock shows every sign of being modestly undervalued. GF Value for Ardmore Shipping is shown in the chart below.


Ardmore Shipping Stock Gives Every Indication Of Being Modestly Undervalued
Ardmore Shipping Stock Gives Every Indication Of Being Modestly Undervalued

Because Ardmore Shipping is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 4.2% over the past five years.

Link: These companies may deliever higher future returns at reduced risk.

It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Ardmore Shipping has a cash-to-debt ratio of 0.14, which is worse than 72% of the companies in Transportation industry. The overall financial strength of Ardmore Shipping is 4 out of 10, which indicates that the financial strength of Ardmore Shipping is poor. This is the debt and cash of Ardmore Shipping over the past years:

Ardmore Shipping Stock Gives Every Indication Of Being Modestly Undervalued
Ardmore Shipping Stock Gives Every Indication Of Being Modestly Undervalued

It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Ardmore Shipping has been profitable 3 over the past 10 years. Over the past twelve months, the company had a revenue of $220.1 million and loss of $0.18 a share. Its operating margin is 11.27%, which ranks better than 74% of the companies in Transportation industry. Overall, GuruFocus ranks the profitability of Ardmore Shipping at 4 out of 10, which indicates poor profitability. This is the revenue and net income of Ardmore Shipping over the past years:

Ardmore Shipping Stock Gives Every Indication Of Being Modestly Undervalued
Ardmore Shipping Stock Gives Every Indication Of Being Modestly Undervalued

One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Ardmore Shipping is 4.2%, which ranks in the middle range of the companies in Transportation industry. The 3-year average EBITDA growth is 2.3%, which ranks in the middle range of the companies in Transportation industry.

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Ardmore Shipping's ROIC is 3.63 while its WACC came in at 5.42.

In summary, the stock of Ardmore Shipping (NYSE:ASC, 30-year Financials) appears to be modestly undervalued. The company's financial condition is poor and its profitability is poor. Its growth ranks in the middle range of the companies in Transportation industry. To learn more about Ardmore Shipping stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.

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