Unveiling Nabors Industries (NBR)'s Value: Is It Really Priced Right? A Comprehensive Guide
Nabors Industries Ltd (NYSE:NBR) has been making waves in the market with a daily gain of 3.33% and a 3-month gain of 19.55%. However, it has reported a Loss Per Share of 5.87. This raises a critical question: Is the stock fairly valued? In this article, we aim to answer this question through a comprehensive valuation analysis of Nabors Industries. So, let's dive in!
Company Introduction
Nabors Industries Ltd, a leading operator of one of the world's largest land-based drilling rig fleets, provides offshore platform rigs in the United States and international markets. With operations in over 15 countries, the company's revenue streams are diversified across five reportable segments: U.S. Drilling, Canada Drilling, International Drilling, Drilling Solutions, and Rig Technologies. The stock price is currently at $125.11, close to its GF Value of $124.6, indicating that it might be fairly valued.
Understanding the GF Value
The GF Value is a proprietary measure that estimates the intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. 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.
With a market cap of $1.20 billion, Nabors Industries (NYSE:NBR) seems to be fairly valued at its current price of $125.11 per share. As a result, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with low financial strength can result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Nabors Industries has a cash-to-debt ratio of 0.17, which ranks worse than 72.28% of 1021 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Nabors Industries's financial strength as 4 out of 10, suggesting a poor balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Nabors Industries has been profitable 1 over the past 10 years. Over the past twelve months, the company had a revenue of $3 billion and a Loss Per Share of $5.87. Its operating margin is 7.81%, which ranks worse than 51.91% of 967 companies in the Oil & Gas industry. Overall, the profitability of Nabors Industries is ranked 3 out of 10, indicating poor profitability.
Growth
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 Nabors Industries is -11.7%, which ranks worse than 84.12% of 850 companies in the Oil & Gas industry. The 3-year average EBITDA growth is -1.3%, which ranks worse than 70.37% of 820 companies in the Oil & Gas industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Nabors Industries's ROIC is 0.87 while its WACC came in at 9.17.
Conclusion
In conclusion, the stock of Nabors Industries (NYSE:NBR) shows every sign of being fairly valued. The company's financial condition is poor, and its profitability is poor. Its growth ranks worse than 70.37% of 820 companies in the Oil & Gas industry. To learn more about Nabors Industries stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
