Recently, Green Plains Inc (GPRE, Financial) experienced a notable daily loss of 6.03%, contributing to a three-month decline of 20.09%. With a Loss Per Share of 1.23, investors are keen to understand whether the stock is modestly undervalued. This article delves into a detailed valuation analysis to explore the true worth of Green Plains, encouraging readers to consider the nuanced financial landscape of the company.
Company Overview
Green Plains Inc manufactures and sells ethanol and its byproducts through three main segments: ethanol production, agribusiness and energy services, and partnership operations. The ethanol production segment, the primary revenue generator, includes the production of ethanol, distillers grains, Ultra-High Protein, and renewable corn oil. The agribusiness and energy services segment manages grain handling, commodity marketing, and merchant trading for various products. Lastly, the partnership segment focuses on fuel storage and transportation services. Currently, Green Plains' stock is trading at $19.02 per share with a market cap of $1.20 billion, juxtaposed against a GF Value of $25.33, suggesting that the stock might be undervalued.
Understanding the GF Value
The GF Value is a proprietary measure calculated to represent the intrinsic value of a stock. This calculation is based on historical trading multiples such as PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, adjusted by a GuruFocus factor that considers past returns and growth, alongside future business performance estimates. The GF Value suggests a fair trading value, and if Green Plains' stock price lies significantly below this line, as it does currently, it indicates potential for higher future returns.
Financial Strength and Risks
Investing in companies with robust financial strength mitigates the risk of permanent capital loss. Green Plains has a cash-to-debt ratio of 0.34, which is lower than 67.68% of its peers in the Chemicals industry, indicating a fair financial strength with a GuruFocus rating of 6 out of 10.
Profitability and Growth Concerns
Profitability is crucial for long-term investment viability. Green Plains has shown profitability in 5 out of the past 10 years, with recent revenues reaching $3.10 billion. However, the company's operating margin stands at -1.8%, ranking lower than 81.75% of its industry counterparts. The company's growth metrics also reflect challenges, with a 3-year average revenue growth rate lower than 75.37% of competitors in the Chemicals industry.
ROIC vs. WACC Analysis
Comparing Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) provides insights into value creation. Green Plains' ROIC of -3.33 and a WACC of 9.29 suggest that the company is currently not generating adequate returns on its investments.
Conclusion
Despite the challenges in profitability and growth, Green Plains (GPRE, Financial) appears modestly undervalued based on its current stock price relative to the GF Value. This assessment suggests potential for higher future returns, assuming an improvement in financial and operational performance. For a deeper dive into Green Plains' financial health and stock performance, visit their 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
