Unveiling Suburban Propane Partners LP (SPH)'s Value: Is It Really Priced Right? A ...
Suburban Propane Partners LP (NYSE:SPH) recently reported a daily gain of 10.09% with a 3-month gain of 10.83%. Its Earnings Per Share (EPS) (EPS) stands at 1.39. The question that arises now is whether the stock is fairly valued. This article aims to provide an in-depth analysis of the valuation of Suburban Propane Partners LP (NYSE:SPH) based on its recent performance and the GF Value. Let's delve into the financials to understand the company's intrinsic value better.
Company Introduction
Suburban Propane Partners LP is a renowned distributor of propane, fuel oil, and other refined fuels. It primarily serves customers in the East Coast and West Coast regions of the United States. The company also partakes in natural gas and electricity marketing in the deregulated markets of New York and Pennsylvania. The stock price of Suburban Propane Partners LP stands at $16.15, while its GF Value, an estimation of fair value, is $16.79. This comparison sets the stage for a deeper 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, GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
If the stock price is significantly above the GF Value Line, it indicates overvaluation and potential poor future returns. Conversely, if it is significantly below the GF Value Line, it suggests undervaluation and likely higher future returns. Based on this method, Suburban Propane Partners LP's stock appears to be fairly valued at its current price of $16.15 per share. Thus, the long-term return of its stock is likely to be close to the rate of its business growth.
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Assessing Financial Strength
Investing in companies with low financial strength can result in permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective. Suburban Propane Partners LP's cash-to-debt ratio is 0.01, ranking worse than 95.26% of 485 companies in the Utilities - Regulated industry. Based on this, GuruFocus ranks Suburban Propane Partners LP's financial strength as 4 out of 10, suggesting a poor balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Suburban Propane Partners LP has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.40 billion and Earnings Per Share (EPS) of $1.39. Its operating margin is 11.47%, which ranks worse than 51.38% of 506 companies in the Utilities - Regulated industry. Overall, the profitability of Suburban Propane Partners LP is ranked 7 out of 10, indicating fair profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. Suburban Propane Partners LP's 3-year average revenue growth rate is worse than 64.81% of 486 companies in the Utilities - Regulated industry. Its 3-year average EBITDA growth rate is -1.8%, ranking worse than 70.37% of 459 companies in the Utilities - Regulated 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). 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Suburban Propane Partners LP's ROIC is 7.41 while its WACC came in at 5.38.
Conclusion
In conclusion, the stock of Suburban Propane Partners LP (NYSE:SPH) appears to be fairly valued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 70.37% of 459 companies in the Utilities - Regulated industry. To learn more about Suburban Propane Partners LP stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
