Frontline Plc (FRO, Financial) has experienced a daily gain of 4.37% and a 3-month gain of 26.42%. With an Earnings Per Share (EPS) of 3.71, the question arises: is the stock fairly valued? This article presents an in-depth valuation analysis of Frontline Plc. Let's delve into the details.
Company Introduction
Frontline Plc is an international shipping company, primarily engaged in the seaborne transportation of crude oil and oil products. The company operates through its tankers segment, which includes crude oil tankers and product tankers. Frontline's geographical area of operation spans the Arabian Gulf, West African, the North Sea, and the Caribbean. The company earns revenue through voyage charters, time charters, and a finance lease. It is also involved in the charter, purchase, and sale of vessels.
Summarizing GF Value
The GF Value is a proprietary estimate of a stock's intrinsic value, calculated considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally trade.
Frontline Plc (FRO, Financial) is estimated to be fairly valued based on the GuruFocus Value calculation. At its current price of $17.2 per share, Frontline Plc has a market cap of $3.80 billion, indicating that the stock is fairly valued. As Frontline Plc is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review the financial strength of a company before deciding whether to buy its stock. A great starting point for understanding the financial strength of a company is looking at the cash-to-debt ratio. Frontline Plc has a cash-to-debt ratio of 0.23, which is worse than 66.6% of 1021 companies in the Oil & Gas industry. GuruFocus ranks the overall financial strength of Frontline Plc at 5 out of 10, which indicates that the financial strength of Frontline Plc is fair.
Profitability and Growth
Investing in profitable companies poses less risk, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Frontline Plc has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $1.90 billion and Earnings Per Share (EPS) of $3.71. Its operating margin is 43.98%, which ranks better than 85.63% of 967 companies in the Oil & Gas industry. Overall, GuruFocus ranks the profitability of Frontline Plc at 7 out of 10, which indicates fair profitability.
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 Frontline Plc is 7.8%, which ranks worse than 55.76% of 850 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 19.9%, which ranks better than 57.44% of 820 companies in the Oil & Gas industry.
ROIC vs WACC
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, Frontline Plc's ROIC is 19.96 while its WACC came in at 5.7.
Conclusion
In summary, the stock of Frontline Plc (FRO, Financial) is estimated to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 57.44% of 820 companies in the Oil & Gas industry. To learn more about Frontline Plc stock, you can check out its 30-Year Financials here.
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