Calumet Specialty Products Partners LP (CLMT, Financial) recently showcased a notable daily gain of 14.82%, and over the past three months, it has seen a gain of 2.02%. With an Earnings Per Share (EPS) of $0.52, investors are keen to understand whether the stock is modestly overvalued, as suggested by its current market price. This article delves into a valuation analysis of Calumet Specialty Products Partners LP, providing investors with insights into its true market value. Read on for a detailed exploration of the factors that contribute to the company's valuation.
Company Introduction
Calumet Specialty Products Partners LP is a distinguished player in the North American market for specialty hydrocarbon products. The company operates through three segments: Specialty Products and Solutions, Performance Brands, and Montana/Renewables, offering a diverse range of products from solvents to high-performance lubricants. With a current stock price of $16.98 and a GF Value of $14.91, it's crucial to assess whether the stock is trading at a fair valuation. This comparison between the stock price and the GF Value will serve as the foundation for our in-depth analysis of Calumet Specialty Products Partners LP's intrinsic value.
Summarize GF Value
The GF Value is a unique measure that determines the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and future business performance projections. When a stock's price significantly exceeds the GF Value Line, it is considered overvalued, potentially leading to subpar future returns. Conversely, a price well below the GF Value Line may indicate undervaluation and the prospect of higher future returns. Currently, Calumet Specialty Products Partners LP's stock price of $16.98 suggests that it is modestly overvalued.
Given this valuation, it seems likely that the long-term return on Calumet Specialty Products Partners LP stock may not keep pace with the company's business growth, which is an important consideration for investors.
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Financial Strength
Investors must scrutinize a company's financial strength to avoid the risk of permanent capital loss. Calumet Specialty Products Partners LP's cash-to-debt ratio of 0.01 places it in a precarious position in comparison to its industry peers. This metric ranks lower than 95.96% of companies in the Oil & Gas industry. With a financial strength score of 4 out of 10, Calumet's balance sheet is considered weak.
Profitability and Growth
Investing in profitable companies, especially those with a history of consistent profitability, tends to be less risky. Calumet Specialty Products Partners LP has shown profitability over the past decade. In the last year, the company reported $4.20 billion in revenue and an Earnings Per Share (EPS) of $0.52. However, with an operating margin of 6.03%, it ranks below 56.65% of its industry counterparts. Calumet's profitability is rated 4 out of 10, indicating room for improvement.
When it comes to growth, the company's 3-year average annual revenue growth rate of 10.2% is middling, while its 3-year average EBITDA growth rate of -19.7% is concerning, ranking lower than 85.99% of industry competitors.
ROIC vs WACC
Comparing the Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another method to gauge a company's profitability. Calumet's ROIC over the past year was 8.48%, which unfortunately falls short of its WACC of 10.37%, suggesting that the company is not generating sufficient returns on its investments.
Conclusion
After thorough analysis, Calumet Specialty Products Partners LP (CLMT, Financial) appears to be modestly overvalued. The company's financial condition raises concerns, and its profitability scores are not impressive. Furthermore, its growth prospects are weaker than a significant portion of its industry peers. For those interested in a deeper understanding of Calumet Specialty Products Partners LP's financials, a review of its 30-Year Financials is available here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
