EnLink Midstream LLC (NYSE:ENLC) experienced a daily loss of 4.37%, however, it has gained 18.52% over the past three months. The company's Earnings Per Share (EPS) stands at 0.74. But is the stock modestly overvalued? This article provides a comprehensive analysis of EnLink Midstream LLC's valuation, encouraging readers to delve into the following sections for a more profound understanding.
EnLink Midstream LLC is an integrated midstream company with a diverse operating segment that includes Permian, North Texas, Oklahoma, and Louisiana. The Louisiana segment, which includes natural gas pipelines, processing plants, storage facilities, and NGL assets, generates the highest revenue for the company. With a current stock price of $12.16, EnLink Midstream LLC has a market cap of $5.60 billion, which is higher than its GF Value of $9.47, suggesting the stock might be modestly overvalued.
Understanding GF Value
The proprietary GF Value represents the current intrinsic value of a stock. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. This value is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance 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.
Given its current price, EnLink Midstream LLC's stock appears to be modestly overvalued. Therefore, the long-term return of its stock is likely to be lower than its business growth.
Evaluating Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. It is crucial to carefully review a company's financial strength before buying its stock. A good starting point is to look at the cash-to-debt ratio and interest coverage. EnLink Midstream LLC has a cash-to-debt ratio of 0.01, which is lower than 95.2% of 1020 companies in the Oil & Gas industry. This indicates that the financial strength of EnLink Midstream LLC is poor.
Profitability and Growth
Companies that consistently turn a profit over the long term offer less risk for investors. EnLink Midstream LLC has been profitable for 5 out of the past 10 years. Over the past twelve months, the company had a revenue of $7.90 billion and Earnings Per Share (EPS) of $0.74. Its operating margin is 8.31%, ranking lower than 50.78% of 965 companies in the Oil & Gas industry. This indicates fair profitability.
Growth is a critical factor in a company's valuation. EnLink Midstream LLC's 3-year average revenue growth rate is better than 58.89% of 849 companies in the Oil & Gas industry. However, its 3-year average EBITDA growth rate is 6.1%, which ranks lower than 61.27% of 821 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) is another way to evaluate its profitability. Over the past 12 months, EnLink Midstream LLC's ROIC was 9.82, while its WACC came in at 9.13, indicating that the company is creating value for shareholders.
In conclusion, EnLink Midstream LLC (NYSE:ENLC) stock appears to be modestly overvalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks lower than 61.27% of 821 companies in the Oil & Gas industry. To learn more about EnLink Midstream LLC stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.