The stock of Tenaris SA (NYSE:TS, 30-year Financials) gives every indication 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 $22.56 per share and the market cap of $13.2 billion, Tenaris SA stock gives every indication of being significantly overvalued. GF Value for Tenaris SA is shown in the chart below.
Because Tenaris SA 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. Tenaris SA has a cash-to-debt ratio of 1.66, which is better than 68% of the companies in Oil & Gas industry. The overall financial strength of Tenaris SA is 7 out of 10, which indicates that the financial strength of Tenaris SA is fair. This is the debt and cash of Tenaris SA over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Tenaris SA has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $5.1 billion and loss of $1.079 a share. Its operating margin is -0.71%, which ranks in the middle range of the companies in Oil & Gas industry. Overall, the profitability of Tenaris SA is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Tenaris SA over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Tenaris SA's 3-year average revenue growth rate is in the middle range of the companies in Oil & Gas industry. Tenaris SA's 3-year average EBITDA growth rate is -57.1%, which ranks in the bottom 10% of the companies in Oil & Gas industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Tenaris SA's ROIC was -0.32, while its WACC came in at 9.44. The historical ROIC vs WACC comparison of Tenaris SA is shown below:
In short, the stock of Tenaris SA (NYSE:TS, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Oil & Gas industry. To learn more about Tenaris SA stock, you can check out its 30-year Financials here.
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