Decoding Genesis Energy LP (GEL)'s True Worth: Is It Really Priced Right?
Genesis Energy LP (NYSE:GEL) experienced a daily loss of 3.15%, despite a 3-month gain of 10.89% and an Earnings Per Share (EPS) of 0.04. The question that arises is whether the stock is modestly undervalued. This article aims to provide a detailed analysis of Genesis Energy LP's valuation to answer this question. We invite you to delve into the following analysis for an informed investment decision.
Introducing Genesis Energy LP
Genesis Energy LP is a US-based limited partnership that focuses on the midstream segment of the crude oil and natural gas industry. It provides services to crude oil and natural gas producers, as well as industrial and commercial enterprises. The company's primary segments include offshore pipeline transportation, sodium minerals and sulfur services, onshore facilities and transportation, and marine transportation.
Genesis Energy LP's stock price is currently $10.45, while its GF Value, an estimation of fair value, stands at $13.11. This discrepancy suggests that the stock may be modestly undervalued. Here's a snapshot of Genesis Energy LP's income breakdown:
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
Genesis Energy LP's stock appears to be modestly undervalued based on the GF Value. This suggests that the future return of its stock is likely to be higher than its business growth. Below is the GF Value chart of Genesis Energy LP:
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Assessing Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before investing. Genesis Energy LP's cash-to-debt ratio stands at 0, which is worse than 0% of 1034 companies in the Oil & Gas industry. Its overall financial strength is ranked 3 out of 10, indicating that its financial strength is poor.
Here is the debt and cash of Genesis Energy LP over the past years:
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Genesis Energy LP has been profitable 7 out of the past 10 years. Over the past twelve months, the company had a revenue of $3 billion and an Earnings Per Share (EPS) of $0.04. Its operating margin is 10.52%, which ranks better than 54.07% of 984 companies in the Oil & Gas industry. Overall, the profitability of Genesis Energy LP is ranked 6 out of 10, indicating fair profitability.
Another crucial factor in a company's valuation is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Genesis Energy LP's average annual revenue growth is 4%, which ranks worse than 63.3% of 861 companies in the Oil & Gas industry. Its 3-year average EBITDA growth is 0.3%, ranking worse than 68.31% of 830 companies in the same 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. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business, while WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Genesis Energy LP's ROIC is 5.49, and its WACC is 8.95.
The historical ROIC vs WACC comparison of Genesis Energy LP is shown below:
Conclusion
In conclusion, Genesis Energy LP's stock shows signs of being modestly undervalued. While the company's financial condition is poor, its profitability is fair. Its growth ranks worse than 68.31% of 830 companies in the Oil & Gas industry. For more details about Genesis Energy LP's stock, check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
