Is Transportadora de Gas del Sur SA (TGS) Overvalued? An In-Depth Analysis of Its Market Value
Transportadora de Gas del Sur SA (NYSE:TGS) experienced a daily loss of -4.81% and a 3-month loss of -15.63%. The company's Earnings Per Share (EPS) (EPS) stands at 1.12. The question that arises is whether the stock is significantly overvalued. This article provides a comprehensive analysis of the company's valuation. Read on to make an informed decision about your investment.
Company Overview
Transportadora de Gas del Sur SA is one of the largest transporters of natural gas in Latin America. The company's operating segments include Natural Gas Transportation, Production and Commercialization of Liquids, Other Services, and Telecommunications. The majority of its revenue is derived from Argentina. The company's stock price is currently at $10.89, compared to its Fair Value (GF Value) of $2.07. This discrepancy calls for a deeper exploration of the company's value.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line provides an overview of what the stock's fair trading value should be. This measure is based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates. 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.
Transportadora de Gas del Sur SA's stock appears to be significantly overvalued based on the GF Value. The stock's fair value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. Given its current price of $10.89 per share, Transportadora de Gas del Sur SA's stock seems significantly overvalued. As a result, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Therefore, it is crucial to review the financial strength of a company before deciding to buy its stock. A good starting point is to look at the cash-to-debt ratio and interest coverage. Transportadora de Gas del Sur SA has a cash-to-debt ratio of 0.84, which ranks better than 56.71% of 1021 companies in the Oil & Gas industry. The overall financial strength of Transportadora de Gas del Sur SA is ranked at 7 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies carries less risk, especially if the company has demonstrated consistent profitability over the long term. Transportadora de Gas del Sur SA has been profitable for 9 out of the past 10 years. During the past 12 months, the company had revenues of $1 billion and Earnings Per Share (EPS) of $1.12. Its operating margin of 28.09% is better than 72.8% of 967 companies in the Oil & Gas industry. Overall, GuruFocus ranks Transportadora de Gas del Sur SA's profitability as strong.
Growth is a crucial factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Transportadora de Gas del Sur SA is 18.8%, which ranks better than 67.65% of 850 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 19.6%, which ranks better than 57.07% of 820 companies in the Oil & Gas industry.
Another measure of a company's profitability is to compare its return on invested capital (ROIC) with the weighted cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. The ROIC should be higher than the WACC. For the past 12 months, Transportadora de Gas del Sur SA's ROIC is 8.72, and its cost of capital is 9.82.
Conclusion
In conclusion, Transportadora de Gas del Sur SA's stock appears to be significantly overvalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 57.07% of 820 companies in the Oil & Gas industry. To learn more about Transportadora de Gas del Sur SA's stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
