The stock of BW LPG (OTCPK:BWLLF, 30-year Financials) is believed to be fairly valued, 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 $6.81 per share and the market cap of $934.4 million, BW LPG stock appears to be fairly valued. GF Value for BW LPG is shown in the chart below.
Because BW LPG is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 21% over the past five years.
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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. BW LPG has a cash-to-debt ratio of 0.08, which is worse than 84% of the companies in Transportation industry. The overall financial strength of BW LPG is 4 out of 10, which indicates that the financial strength of BW LPG is poor. This is the debt and cash of BW LPG 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. BW LPG has been profitable 6 years over the past 10 years. During the past 12 months, the company had revenues of $811.7 million and earnings of $1.76 a share. Its operating margin of 31.02% better than 93% of the companies in Transportation industry. Overall, GuruFocus ranks BW LPG's profitability as fair. This is the revenue and net income of BW LPG over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of BW LPG is 21%, which ranks better than 91% of the companies in Transportation industry. The 3-year average EBITDA growth is 53.8%, which ranks better than 96% of the companies in Transportation 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, BW LPG's ROIC is 11.02 while its WACC came in at 7.34. The historical ROIC vs WACC comparison of BW LPG is shown below:
Overall, the stock of BW LPG (OTCPK:BWLLF, 30-year Financials) is estimated to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 96% of the companies in Transportation industry. To learn more about BW LPG stock, you can check out its 30-year Financials here.
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