Unveiling ProPetro Holding (PUMP)'s Value: Is It Really Priced Right? A Comprehensive Guide
ProPetro Holding Corp (NYSE:PUMP) experienced a daily loss of 3.47%, yet it has shown a 3-month gain of 23.57%. The company's Earnings Per Share (EPS) stands at 0.82. This article aims to answer the question: is ProPetro Holding (NYSE:PUMP) modestly undervalued? We invite you to read on as we delve into a comprehensive valuation analysis of the company.
Company Introduction
ProPetro Holding Corp is a Texas-based oilfield services company. It provides hydraulic fracturing, wireline, and other complementary services to oil and gas companies engaged in the exploration and production of North American unconventional oil and natural gas resources. The company is focused on the Permian Basin. Its operating segments include Hydraulic Fracturing, Cementing, Coiled Tubing, drilling, and flowback. With a stock price of $9.73 and a GF Value of $12.5, ProPetro Holding (NYSE:PUMP) appears to be modestly undervalued.
Understanding 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 business performance estimates. The GF Value Line gives an overview of the fair value that the stock should ideally be traded at.
ProPetro Holding's stock shows signs of being modestly undervalued according to the GF Value. This is based on historical multiples, an internal adjustment factor based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. However, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. Given its current price of $9.73 per share, ProPetro Holding's stock appears to be modestly undervalued.
As ProPetro Holding is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength Analysis
Companies with poor financial strength can pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. ProPetro Holding has a cash-to-debt ratio of 1.04, which ranks better than 59.16% of 1021 companies in the Oil & Gas industry. The overall financial strength of ProPetro Holding is 8 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. ProPetro Holding has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $1.50 billion and Earnings Per Share (EPS) of $0.82. Its operating margin is 13.93%, which ranks better than 59.77% of 967 companies in the Oil & Gas industry. Overall, the profitability of ProPetro Holding is ranked 5 out of 10, indicating fair 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 ProPetro Holding is -15.4%, which ranks worse than 86.82% of 850 companies in the Oil & Gas industry. The 3-year average EBITDA growth is -28.6%, which ranks worse than 89.39% of 820 companies in the Oil & Gas industry.
ROIC Vs WACC
Another way to gauge the profitability of a company is to compare its return on invested capital (ROIC) and the weighted average cost of capital (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. For the past 12 months, ProPetro Holding's return on invested capital is 16.85, and its cost of capital is 13.47.
Conclusion
Overall, ProPetro Holding Corp (NYSE:PUMP) stock shows every sign of being modestly undervalued. The company's financial condition is strong and its profitability is fair. Its growth ranks worse than 89.39% of 820 companies in the Oil & Gas industry. To learn more about ProPetro Holding stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
