The stock of MV Oil Trust (NYSE:MVO, 30-year Financials) shows every sign of being significantly overvalued, 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 $4.43 per share and the market cap of $50.9 million, MV Oil Trust stock appears to be significantly overvalued. GF Value for MV Oil Trust is shown in the chart below.
Because MV Oil Trust is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. MV Oil Trust has a cash-to-debt ratio of 10000.00, which is better than 100% of the companies in Oil & Gas industry. The overall financial strength of MV Oil Trust is 8 out of 10, which indicates that the financial strength of MV Oil Trust is strong. This is the debt and cash of MV Oil Trust over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. MV Oil Trust has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $6.8 million and earnings of $0.49 a share. Its operating margin of 83.00% better than 99% of the companies in Oil & Gas industry. Overall, GuruFocus ranks MV Oil Trust's profitability as fair. This is the revenue and net income of MV Oil Trust 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 MV Oil Trust is -9.4%, which ranks worse than 66% of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is -12%, which ranks worse than 67% of the companies in Oil & Gas industry.
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, MV Oil Trust's ROIC is 50.34 while its WACC came in at 11.44. The historical ROIC vs WACC comparison of MV Oil Trust is shown below:
In summary, the stock of MV Oil Trust (NYSE:MVO, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks worse than 67% of the companies in Oil & Gas industry. To learn more about MV Oil Trust stock, you can check out its 30-year Financials here.
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