Helix Energy Solutions Group Stock Is Believed To Be Possible Value Trap
- By GF Value
The stock of Helix Energy Solutions Group (NYSE:HLX, 30-year Financials) gives every indication of being possible value trap, 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 $4.85 per share and the market cap of $731 million, Helix Energy Solutions Group stock gives every indication of being possible value trap. GF Value for Helix Energy Solutions Group is shown in the chart below.
The reason we think that Helix Energy Solutions Group stock might be a value trap is because Helix Energy Solutions Group has an Altman Z-score of 1.29, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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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. Helix Energy Solutions Group has a cash-to-debt ratio of 0.58, which ranks in the middle range of the companies in Oil & Gas industry. Based on this, GuruFocus ranks Helix Energy Solutions Group's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Helix Energy Solutions Group over the past years:
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. Helix Energy Solutions Group has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $733.6 million and earnings of $0.14 a share. Its operating margin is 2.57%, which ranks in the middle range of the companies in Oil & Gas industry. Overall, GuruFocus ranks the profitability of Helix Energy Solutions Group at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Helix Energy Solutions Group over the past years:
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. Helix Energy Solutions Group's 3-year average revenue growth rate is better than 66% of the companies in Oil & Gas industry. Helix Energy Solutions Group's 3-year average EBITDA growth rate is 13.3%, which ranks in the middle range 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, Helix Energy Solutions Group's ROIC is 12.36 while its WACC came in at 31.31. The historical ROIC vs WACC comparison of Helix Energy Solutions Group is shown below:
In summary, The stock of Helix Energy Solutions Group (NYSE:HLX, 30-year Financials) is believed to be possible value trap. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about Helix Energy Solutions Group stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
