Calumet Specialty Products Partners LP (CLMT): An In-Depth Look at Its Significant Overvaluation
With a daily gain of 4.46%, a three-month gain of 24%, and a Loss Per Share of $0.55, Calumet Specialty Products Partners LP (NASDAQ:CLMT) has been making waves in the stock market. However, the question remains: is the stock significantly overvalued? This article will delve into the valuation analysis of Calumet Specialty Products Partners LP (NASDAQ:CLMT), providing you with insights to make informed investment decisions.
Company Introduction
Calumet Specialty Products Partners LP is a leading independent producer of specialty hydrocarbon products in North America. The company operates through three segments: Specialty Products and Solutions, Performance Brands, and Montana/Renewables. Despite its current stock price of $19.82, the GF Value, an estimation of fair value, stands at $14.55, indicating a potential overvaluation. Let's dive deeper into the company's value and financial performance.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Currently, Calumet Specialty Products Partners LP's stock price of $19.82 per share and the market cap of $1.60 billion indicate a significant overvaluation. As a result, the long-term return of its stock is likely to be much lower than its future business growth.
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Evaluating Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss of capital. Therefore, it's crucial to review a company's financial strength before investing. Calumet Specialty Products Partners LP has a cash-to-debt ratio of 0.02, ranking worse than 91.87% of companies in the Oil & Gas industry. This indicates that the company's financial strength is poor.
Profitability and Growth
Investing in profitable companies is less risky, especially those demonstrating consistent profitability over the long term. Calumet Specialty Products Partners LP has been profitable for one of the past ten years, with an operating margin of 2.9%, which ranks worse than 64.12% of companies in the Oil & Gas industry. This indicates poor profitability.
Furthermore, growth is a crucial factor in a company's valuation. Calumet Specialty Products Partners LP's average annual revenue growth is 10.2%, ranking better than 50.47% of companies in the Oil & Gas industry. However, the 3-year average EBITDA growth is -19.7%, ranking worse than 84.76% of companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted average cost of capital (WACC) is another way to assess its profitability. For the past 12 months, Calumet Specialty Products Partners LP's ROIC is 4.91, and its WACC is 9.61, indicating a lower return on invested capital than the cost of capital.
Conclusion
In conclusion, the stock of Calumet Specialty Products Partners LP (NASDAQ:CLMT) shows every sign of being significantly overvalued. The company's financial condition is poor, and its profitability is poor. Its growth ranks worse than 84.76% of companies in the Oil & Gas industry. For more about Calumet Specialty Products Partners LP stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
