Unveiling Dorian LPG (LPG)'s Value: Is It Really Priced Right? A Comprehensive Guide
Dorian LPG Ltd (NYSE:LPG) has recently experienced a daily gain of 4.94%, and a 3-month gain of 20.02%. Its Earnings Per Share (EPS) stands at 4.95. But the question remains, is the stock modestly overvalued? This article provides a comprehensive valuation analysis to answer this question. Read on to discover more.
Company Introduction
Dorian LPG Ltd is an international liquefied petroleum gas shipping company with a focus on owning and operating gas carriers. The company has a fleet of 22 modern VLGCs, including nineteen fuel-efficient 84,000 cbm ECO-design VLGCs. With offices in Connecticut, USA, London, United Kingdom, and Athens, Greece, the company has established a global presence. The company's stock price is currently at $30.15, while its GF Value, an estimation of fair value, stands at $23.33. This presents an intriguing contrast, setting the stage for a deeper exploration of the company's intrinsic value.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides a snapshot of the stock's ideal fair trading value. If the stock's price is significantly above the GF Value Line, it suggests overvaluation, 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.
As per GuruFocus' valuation method, Dorian LPG (NYSE:LPG) is estimated to be modestly overvalued. The stock's fair value is determined by historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $30.15 per share, Dorian LPG has a market cap of $1.20 billion, indicating that the stock is modestly overvalued.
As Dorian LPG is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, a careful review of a company's financial strength is essential before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength. Dorian LPG has a cash-to-debt ratio of 0.2, which ranks worse than 69.01% of 1026 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Dorian LPG's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Dorian LPG has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $424.50 million and Earnings Per Share (EPS) of $4.95. Its operating margin is 53.01%, which ranks better than 92.54% of 979 companies in the Oil & Gas industry. Overall, the profitability of Dorian LPG is ranked 8 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Dorian LPG is 16.3%, which ranks better than 61.51% of 860 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 20.6%, which ranks better than 58.47% of 826 companies in the Oil & Gas industry.
ROIC vs 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. Ideally, the return on invested capital should be higher than the weighted cost of capital. For the past 12 months, Dorian LPG's return on invested capital is 15.72, and its cost of capital is 8.32.
Conclusion
Overall, Dorian LPG (NYSE:LPG) stock is estimated to be modestly overvalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 58.47% of 826 companies in the Oil & Gas industry. To learn more about Dorian LPG stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
