Performance Shipping Stock Is Estimated To Be Significantly Overvalued
- By GF Value
The stock of Performance Shipping (NAS:PSHG, 30-year Financials) shows every sign of being 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 $5.8 per share and the market cap of $29.5 million, Performance Shipping stock is believed to be significantly overvalued. GF Value for Performance Shipping is shown in the chart below.
Because Performance Shipping 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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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Performance Shipping has a cash-to-debt ratio of 0.37, which is in the middle range of the companies in Transportation industry. The overall financial strength of Performance Shipping is 5 out of 10, which indicates that the financial strength of Performance Shipping is fair. This is the debt and cash of Performance Shipping over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Performance Shipping has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $42 million and earnings of $1.07 a share. Its operating margin of 10.25% better than 71% of the companies in Transportation industry. Overall, GuruFocus ranks Performance Shipping's profitability as poor. This is the revenue and net income of Performance Shipping over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Performance Shipping is -88.5%, which ranks in the bottom 10% of the companies in Transportation industry. The 3-year average EBITDA growth is -94%, which ranks in the bottom 10% of the companies in Transportation 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, Performance Shipping's ROIC is 3.47 while its WACC came in at 4.67. The historical ROIC vs WACC comparison of Performance Shipping is shown below:
To conclude, The stock of Performance Shipping (NAS:PSHG, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Transportation industry. To learn more about Performance Shipping stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
