Unveiling RPC (RES)'s Value: Is It Really Priced Right? A Comprehensive Guide
RPC Inc (NYSE:RES) has been gaining attention from value investors due to its recent performance. With a daily gain of 3.34% and a 3-month gain of 21.33%, coupled with its Earnings Per Share (EPS) of 1.35, the question arises: is RPC (NYSE:RES) modestly undervalued? This article delves into a comprehensive valuation analysis of RPC, providing valuable insights into its intrinsic value and future prospects.
A Snapshot of RPC Inc (NYSE:RES)
Established as an oilfield services company, RPC provides specialized services and equipment primarily to independent and major oil and gas companies. Its operations span across the exploration, production, and development of oil and gas properties throughout the United States. The company operates through two segments: Technical Services and Support Services, with the former being the primary revenue generator. The current stock price of RPC stands at $8.66, while our GF Value estimates its fair value at $10.6. This discrepancy paves the way for a deeper exploration into the company's valuation.
Understanding the GF Value of RPC (NYSE:RES)
The GF Value is a unique measure of a stock's intrinsic value, derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides a fair value at which the stock should ideally be traded. If the stock price significantly deviates from the GF Value Line, its future return is likely to be affected.
Based on our analysis, RPC appears to be modestly undervalued. With a market cap of $1.90 billion and a stock price of $8.66 per share, the future return of RPC's stock is likely to be higher than its business growth due to its relative undervaluation.
Financial Strength of RPC
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, understanding a company's financial strength is crucial before deciding to buy its stock. RPC's cash-to-debt ratio stands at 3.5, which is better than 71.54% of the companies in the Oil & Gas industry. With an overall financial strength ranked at 10 out of 10, RPC's financial health appears robust.
Profitability and Growth of RPC
Companies with consistent profitability offer less risk for investors. RPC has been profitable 6 times over the past 10 years, with an operating margin of 20.2%, ranking better than 67.52% of companies in the Oil & Gas industry. Furthermore, RPC's growth has been impressive, with a 3-year average EBITDA growth rate of 83.9%, ranking better than 93.95% of companies in the same industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) offers insights into its profitability. For the past 12 months, RPC's ROIC has been 32.88, significantly higher than its WACC of 11.47, indicating efficient cash flow generation relative to the capital invested in its business.
Conclusion
In conclusion, RPC (NYSE:RES) appears to be modestly undervalued. The company's strong financial condition, fair profitability, and impressive growth prospects make it an attractive investment. To learn more about RPC's stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
