The stock of Sabine Royalty Trust (NYSE:SBR, 30-year Financials) is believed to be modestly 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 $34.75 per share and the market cap of $506.6 million, Sabine Royalty Trust stock is estimated to be modestly overvalued. GF Value for Sabine Royalty Trust is shown in the chart below.
Because Sabine Royalty Trust is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
Link: These companies may deliever higher future returns at reduced risk.
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. Sabine Royalty Trust has a cash-to-debt ratio of 10000.00, which which ranks better than 100% of the companies in Oil & Gas industry. The overall financial strength of Sabine Royalty Trust is 9 out of 10, which indicates that the financial strength of Sabine Royalty Trust is strong. This is the debt and cash of Sabine Royalty Trust 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. Sabine Royalty Trust has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $36.4 million and earnings of $2.28 a share. Its operating margin is 91.60%, which ranks better than 99% of the companies in Oil & Gas industry. Overall, the profitability of Sabine Royalty Trust is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Sabine Royalty 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 Sabine Royalty Trust is -0.8%, which ranks in the middle range of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is -1.4%, which ranks in the middle range of the companies in Oil & Gas industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Sabine Royalty Trust's return on invested capital is 19342.04, and its cost of capital is 6.63. The historical ROIC vs WACC comparison of Sabine Royalty Trust is shown below:
In summary, the stock of Sabine Royalty Trust (NYSE:SBR, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about Sabine Royalty Trust stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
