Suburban Propane Partners LP (SPH): A Fairly Valued Stock in the Market?
Suburban Propane Partners LP (NYSE:SPH) experienced a daily loss of 1.7%, but over the past three months, it has gained 13.29%. With an Earnings Per Share (EPS) of 1.39, the question emerges: is this stock fairly valued? In this article, we will delve into a valuation analysis of Suburban Propane Partners LP (NYSE:SPH). So, read on to find out more about the intrinsic value of this stock.
Company Introduction
Suburban Propane Partners LP distributes propane, fuel oil, and other refined fuels primarily in the East and West Coast regions of the United States. It also involves in natural gas and electricity marketing in the deregulated New York and Pennsylvania markets. The company's current stock price stands at $16.17, and the GF Value, an estimation of its fair value, is $16.81. This comparison provides a preliminary insight into the company's value, setting the stage for a more in-depth analysis.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future estimates of business performance. If the stock price is significantly above the GF Value Line, it is 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 Suburban Propane Partners LP (NYSE:SPH), the stock is believed to be fairly valued based on GuruFocus' valuation method. At its current price of $16.17 per share, the GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. Since Suburban Propane Partners LP is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. It's crucial to review a company's financial strength before deciding to buy its stock. For Suburban Propane Partners LP, the cash-to-debt ratio stands at 0.01, worse than 95.44% of companies in the Utilities - Regulated industry. This indicates that the company's financial strength is poor.
Profitability and Growth
Investing in profitable companies carries less risk. A company with high profit margins offers better performance potential than a company with low profit margins. Suburban Propane Partners LP has been profitable for 10 years over the past 10 years. Its operating margin of 11.47% is worse than 51.79% of companies in the Utilities - Regulated industry. Overall, Suburban Propane Partners LP's profitability is fair.
Growth is closely correlated with the long-term performance of a company's stock. Suburban Propane Partners LP's 3-year average revenue growth rate is worse than 64.8% of companies in the Utilities - Regulated industry. Its 3-year average EBITDA growth rate is -1.8%, which ranks worse than 70.24% of companies in the industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). For the past 12 months, Suburban Propane Partners LP's return on invested capital is 7.41, and its cost of capital is 5.47. This implies that the company is creating value for shareholders.
Conclusion
In conclusion, the stock of Suburban Propane Partners LP (NYSE:SPH) is believed to be fairly valued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 70.24% of 457 companies in the Utilities - Regulated industry. To learn more about Suburban Propane Partners LP stock, you can check out its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
