Unveiling RPC (RES)'s Value: Is It Really Priced Right? A Comprehensive Guide
Having witnessed a daily gain of 4.77% and a 3-month gain of 31.64%, RPC Inc (NYSE:RES) currently trades at $9.23 per share, with an Earnings Per Share (EPS) (EPS) of 1.35. This raises the question: is RPC (NYSE:RES) modestly undervalued? This article provides an in-depth analysis of the company's valuation, encouraging readers to delve into the subsequent sections for a comprehensive understanding.
Company Overview
RPC Inc is a specialized oilfield services company providing its services primarily to independent and major oil and gas companies. They are engaged in the exploration, production, and development of oil and gas properties throughout the United States. The company's operations are divided into two segments: Technical Services and Support Services, with the former being the major revenue generator. The company's stock price is juxtaposed with its GF Value, providing an estimation of fair value and paving the way for a profound exploration of the company's value.
Understanding the 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 that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. 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.
Based on GuruFocus' valuation method, the stock of RPC (NYSE:RES) appears to be modestly undervalued. The GF Value estimates the stock's fair value based on three key factors: 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 $9.23 per share, RPC stock appears to be modestly undervalued.
Since RPC is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Assessing Financial Strength
Investing in companies with poor financial strength carries 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 great starting point for understanding the financial strength of a company is looking at the cash-to-debt ratio and interest coverage. RPC has a cash-to-debt ratio of 3.5, which is better than 71.28% of 1034 companies in the Oil & Gas industry. GuruFocus ranks the overall financial strength of RPC at 10 out of 10, indicating that the financial strength of RPC is strong.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. RPC has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $1.80 billion and Earnings Per Share (EPS) of $1.35. Its operating margin is 20.2%, which ranks better than 67.48% of 984 companies in the Oil & Gas industry. Overall, the profitability of RPC is ranked 6 out of 10, indicating fair profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of RPC is 9.2%, which ranks worse than 52.44% of 862 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 83.9%, which ranks better than 93.85% of 829 companies in the Oil & Gas industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, RPC's ROIC was 32.88, while its WACC came in at 11.34.
Conclusion
In summary, the stock of RPC (NYSE:RES) appears to be modestly undervalued. The company's financial condition is strong, its profitability is fair, and its growth ranks better than 93.85% of 829 companies in the Oil & Gas industry. To learn more about RPC stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
