The stock of USD Partners LP (NYSE:USDP, 30-year Financials) is believed to be possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $5.75 per share and the market cap of $171.2 million, USD Partners LP stock is estimated to be possible value trap. GF Value for USD Partners LP is shown in the chart below.
The reason we think that USD Partners LP stock might be a value trap is because USD Partners LP has an Altman Z-score of 0.81, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. USD Partners LP has a cash-to-debt ratio of 0.02, which which ranks in the bottom 10% of the companies in Transportation industry. The overall financial strength of USD Partners LP is 3 out of 10, which indicates that the financial strength of USD Partners LP is poor. This is the debt and cash of USD Partners LP over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. USD Partners LP has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $120 million and loss of $0.78 a share. Its operating margin is 21.60%, which ranks better than 87% of the companies in Transportation industry. Overall, the profitability of USD Partners LP is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of USD Partners LP over the past years:
Growth is probably the most important factor 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. 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 USD Partners LP is 0.3%, which ranks in the middle range of the companies in Transportation industry. The 3-year average EBITDA growth rate is -43.9%, which ranks in the bottom 10% of the companies in Transportation industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, USD Partners LP's return on invested capital is 10.45, and its cost of capital is 6.67. The historical ROIC vs WACC comparison of USD Partners LP is shown below:
In short, The stock of USD Partners LP (NYSE:USDP, 30-year Financials) is estimated to be possible value trap. The company's financial condition is poor and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Transportation industry. To learn more about USD Partners LP stock, you can check out its 30-year Financials here.
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