Is Dorian LPG (LPG) Priced Right? An In-Depth Analysis of Its Market Value
On September 22, 2023, Dorian LPG Ltd (NYSE:LPG) recorded a daily gain of 5.19%, adding to its impressive 3-month gain of 21.02%. With a solid Earnings Per Share (EPS) of 4.95, the question arises: is the stock modestly overvalued? This article provides an in-depth analysis of Dorian LPG's intrinsic value and market performance. Stay tuned for an enlightening journey into the world of value investing.
Introduction to Dorian LPG Ltd
Dorian LPG Ltd is an international liquefied petroleum gas shipping company. With offices in Connecticut, USA, London, UK, and Athens, Greece, the company focuses on owning and operating gas carriers, or VLGCs. Currently, Dorian LPG owns and operates around 22 modern VLGCs, including nineteen new fuel-efficient 84,000 cbm ECO-design VLGCs.
As of the date of this analysis, Dorian LPG's stock price stands at $29.6, while the GF Value, an estimation of fair value, is $23.26. This comparison suggests that the stock is modestly overvalued. The following sections delve deeper into the financials and operations of Dorian LPG to provide a comprehensive valuation analysis.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is computed based on historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
According to the GF Value, Dorian LPG (NYSE:LPG) appears to be modestly overvalued. This conclusion is based on the stock's current price of $29.6 per share and a market cap of $1.20 billion. Therefore, the long-term return of Dorian LPG's stock is likely to be lower than its business growth.
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Dorian LPG's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is critical to review a company's financial strength before deciding to buy shares. Dorian LPG has a cash-to-debt ratio of 0.2, ranking worse than 69.15% of 1034 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Dorian LPG's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth of Dorian LPG
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Dorian LPG has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $424.50 million and Earnings Per Share (EPS) of $4.95. Its operating margin is 53.01%, ranking better than 92.38% of 984 companies in the Oil & Gas industry. Overall, the profitability of Dorian LPG is ranked 8 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. Dorian LPG's 3-year average revenue growth rate is better than 61.79% of 861 companies in the Oil & Gas industry. Its 3-year average EBITDA growth rate is 20.6%, ranking better than 58.55% of 830 companies in the Oil & Gas industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Dorian LPG's return on invested capital is 15.72, and its cost of capital is 8.1.
Conclusion
In summary, the stock of Dorian LPG (NYSE:LPG) appears to be modestly overvalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 58.55% of 830 companies in the Oil & Gas industry. To learn more about Dorian LPG stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
