Scorpio Tankers (STNG): An In-depth Analysis of its Market Valuation
Scorpio Tankers Inc (NYSE:STNG) has seen a daily gain of 2.57%, with a 3-month gain of 17.52%. The company's Earnings Per Share (EPS) stands at 14.35. This article aims to answer an important question: Is the stock of Scorpio Tankers modestly overvalued? Let's delve into the valuation analysis to uncover the intrinsic value of Scorpio Tankers, one of the leading providers of marine transportation of petroleum products.
Company Overview
Scorpio Tankers Inc (NYSE:STNG) operates in the marine transportation sector, specializing in the transportation of petroleum products. The company boasts a fleet of 113 product tankers, including 39 LR2 tankers, 60 MR tankers, and 14 Handymax tankers, making it one of the largest, most eco-friendly, and newest fleets in the industry. The company's stock price currently stands at $52.38, while its estimated fair value, the GF Value, is $42.94. This discrepancy suggests that the stock might be modestly overvalued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
For Scorpio Tankers (NYSE:STNG), the stock appears to be modestly overvalued, according to the GuruFocus Value calculation. The stock price is $52.38 per share, with a market cap of $2.80 billion, suggesting a modest overvaluation. Given this, the long-term return of Scorpio Tankers' stock is likely to be lower than its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it is crucial to review a company's financial strength before purchasing shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. Scorpio Tankers has a cash-to-debt ratio of 0.17, which ranks worse than 72.22% of 1033 companies in the Oil & Gas industry. The overall financial strength of Scorpio Tankers is 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Scorpio Tankers has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $1.70 billion and Earnings Per Share (EPS) of $14.35. Its operating margin is 59%, which ranks better than 94.41% of 984 companies in the Oil & Gas industry. Overall, the profitability of Scorpio Tankers is ranked 5 out of 10, indicating fair profitability.
Growth is probably the most important factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Scorpio Tankers is 20.3%, which ranks better than 71.54% of 861 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 32.5%, which ranks better than 70.6% of 830 companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also help evaluate a company's profitability. 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, Scorpio Tankers's ROIC was 23.51 while its WACC came in at 4.97.
Conclusion
In summary, the stock of Scorpio Tankers (NYSE:STNG) appears to be modestly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 70.6% of 830 companies in the Oil & Gas industry. To learn more about Scorpio Tankers stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
