Unveiling USA Compression Partners LP (USAC)'s Value: Is It Really Priced Right? A ...
USA Compression Partners LP (NYSE:USAC) has been making waves in the stock market with a daily gain of 11.81% and a 3-month gain of 33.06%. The company's Earnings Per Share (EPS) (EPS) stands at 0.03. However, the question remains, is the stock modestly overvalued? This article aims to provide a comprehensive analysis of the company's valuation and financial strength, along with a glimpse into its future prospects.
Company Overview
USA Compression Partners LP is a leading provider of compression services in the United States. The company caters to infrastructure applications, enabling the processing and transportation of natural gas through the domestic pipeline system and enhancing crude oil production through artificial lift processes. Operating in several shale plays throughout the U.S., the company engineers, designs, operates, services, and repairs its compression units while maintaining related support inventory and equipment. The stock is currently priced at $25.27, while the GF Value, an estimation of its fair value, stands at $20.97.
Understanding GF Value
The GF Value is a proprietary measure that provides an estimation of a stock's intrinsic value. This measure is calculated considering three key factors: historical trading multiples, a GuruFocus adjustment factor based on the company's past returns 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.
According to the GF Value, the stock of USA Compression Partners LP (NYSE:USAC) is estimated to be modestly overvalued. This means that the long-term return of its stock is likely to be lower than its business growth.
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Assessing Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, understanding a company's financial strength is crucial before deciding to buy shares. USA Compression Partners LP has a cash-to-debt ratio of 0, which ranks worse than 0% of 1034 companies in the Oil & Gas industry. Based on this, GuruFocus ranks USA Compression Partners LP's financial strength as 3 out of 10, suggesting a poor balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. USA Compression Partners LP has been profitable 5 over the past 10 years. Its operating margin is 26.8%, which ranks better than 72.66% of 984 companies in the Oil & Gas industry. However, the company's 3-year average revenue growth rate is worse than 70.19% of 862 companies in the Oil & Gas industry. USA Compression Partners LP's 3-year average EBITDA growth rate is 0.1%, which ranks worse than 68.92% of 830 companies in the Oil & Gas industry.
ROIC vs 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, USA Compression Partners LP's return on invested capital is 7.86, and its cost of capital is 7.2.
Conclusion
In summary, the stock of USA Compression Partners LP (NYSE:USAC) is estimated to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 68.92% of 830 companies in the Oil & Gas industry. To learn more about USA Compression Partners LP stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
