Scorpio Tankers (STNG): A Comprehensive Analysis of Its Market Value
Scorpio Tankers Inc (NYSE:STNG) has seen a daily gain of 4.44% and a 3-month gain of 10.45%. Its Earnings Per Share (EPS) stands at 14.37. However, the question that arises is whether the stock is modestly overvalued. This article provides an in-depth valuation analysis of the company, encouraging readers to delve into the subsequent sections for a deeper understanding.
An Introduction to Scorpio Tankers Inc (NYSE:STNG)
Scorpio Tankers is a leading provider of marine transportation of petroleum products. The company boasts an impressive fleet of 113 product tankers, making it one of the largest and most eco-friendly companies in the industry. Despite its recent gains, the stock's current price of $51.02 per share and the GF Value of $42.52 suggest that it may be modestly overvalued. This analysis aims to explore this valuation in detail, providing essential insights into the company's financial performance and value.
Understanding the GF Value
The GF Value is a proprietary measure that reflects the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor rooted in the company's past performance and growth, and future business performance estimates. If a stock's price is significantly above the GF Value Line, it might be overvalued and offer poor future returns. Conversely, if it's significantly below the GF Value Line, the stock could be undervalued and provide higher future returns.
Given Scorpio Tankers' current price and market cap of $2.70 billion, it appears to be modestly overvalued. This overvaluation suggests that the long-term return of its stock is likely to be lower than its business growth.
Scorpio Tankers' Financial Strength
Investing in companies with weak financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before investing. Scorpio Tankers' cash-to-debt ratio of 0.17 ranks worse than 72.18% of 1028 companies in the Oil & Gas industry, suggesting a fair balance sheet.
Profitability and Growth of Scorpio Tankers
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Scorpio Tankers has been profitable 5 times over the past 10 years. With an operating margin of 59%, it ranks better than 94.6% of 981 companies in the Oil & Gas industry, indicating fair profitability.
As for growth, it's a crucial factor in a company's valuation. Scorpio Tankers' 3-year average annual revenue growth rate is 20.3%, ranking better than 71.25% of 859 companies in the Oil & Gas industry. Its 3-year average EBITDA growth rate is 32.5%, ranking better than 70.7% of 826 companies in the same industry.
ROIC vs WACC Analysis
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) can provide insights into its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Scorpio Tankers' ROIC was 23.47, while its WACC came in at 5.2.
Conclusion
Overall, Scorpio Tankers appears to be modestly overvalued. While its financial condition and profitability are fair, its growth ranks better than 70.7% of 826 companies in the Oil & Gas industry. To learn more about Scorpio Tankers, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
