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Calumet Specialty Products Partners LP Stock Is Estimated To Be Significantly Overvalued

·4 min read

- By GF Value

The stock of Calumet Specialty Products Partners LP (NAS:CLMT, 30-year Financials) appears to be significantly overvalued, 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 $6.37 per share and the market cap of $501.2 million, Calumet Specialty Products Partners LP stock is estimated to be significantly overvalued. GF Value for Calumet Specialty Products Partners LP is shown in the chart below.


Calumet Specialty Products Partners LP Stock Is Estimated To Be Significantly Overvalued
Calumet Specialty Products Partners LP Stock Is Estimated To Be Significantly Overvalued

Because Calumet Specialty Products Partners LP is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.

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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Calumet Specialty Products Partners LP has a cash-to-debt ratio of 0.08, which ranks worse than 78% of the companies in Oil & Gas industry. Based on this, GuruFocus ranks Calumet Specialty Products Partners LP's financial strength as 2 out of 10, suggesting poor balance sheet. This is the debt and cash of Calumet Specialty Products Partners LP over the past years:

Calumet Specialty Products Partners LP Stock Is Estimated To Be Significantly Overvalued
Calumet Specialty Products Partners LP Stock Is Estimated To Be Significantly Overvalued

It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Calumet Specialty Products Partners LP has been profitable 3 over the past 10 years. Over the past twelve months, the company had a revenue of $2.2 billion and loss of $3.5 a share. Its operating margin is -7.11%, which ranks in the middle range of the companies in Oil & Gas industry. Overall, the profitability of Calumet Specialty Products Partners LP is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of Calumet Specialty Products Partners LP over the past years:

Calumet Specialty Products Partners LP Stock Is Estimated To Be Significantly Overvalued
Calumet Specialty Products Partners LP Stock Is Estimated To Be Significantly Overvalued

Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Calumet Specialty Products Partners LP's 3-year average revenue growth rate is worse than 73% of the companies in Oil & Gas industry. Calumet Specialty Products Partners LP's 3-year average EBITDA growth rate is -35.5%, which ranks worse than 83% of the companies in Oil & Gas 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, Calumet Specialty Products Partners LP's ROIC is -9.87 while its WACC came in at 11.93. The historical ROIC vs WACC comparison of Calumet Specialty Products Partners LP is shown below:

Calumet Specialty Products Partners LP Stock Is Estimated To Be Significantly Overvalued
Calumet Specialty Products Partners LP Stock Is Estimated To Be Significantly Overvalued

In closing, the stock of Calumet Specialty Products Partners LP (NAS:CLMT, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 83% of the companies in Oil & Gas industry. To learn 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.