The stock of EnLink Midstream LLC (NYSE:ENLC, 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 $4.46 per share and the market cap of $2.2 billion, EnLink Midstream LLC stock gives every indication of being significantly overvalued. GF Value for EnLink Midstream LLC is shown in the chart below.
Because EnLink Midstream LLC 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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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. EnLink Midstream LLC has a cash-to-debt ratio of 0.01, which ranks in the bottom 10% of the companies in Oil & Gas industry. Based on this, GuruFocus ranks EnLink Midstream LLC's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of EnLink Midstream LLC 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. EnLink Midstream LLC has been profitable 3 years over the past 10 years. During the past 12 months, the company had revenues of $3.9 billion and loss of $0.86 a share. Its operating margin of 10.51% better than 74% of the companies in Oil & Gas industry. Overall, GuruFocus ranks EnLink Midstream LLC's profitability as poor. This is the revenue and net income of EnLink Midstream LLC 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of EnLink Midstream LLC is -36.7%, which ranks in the bottom 10% of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is -33.3%, which ranks worse than 82% of the companies in Oil & Gas industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, EnLink Midstream LLC's return on invested capital is 8.96, and its cost of capital is 11.94. The historical ROIC vs WACC comparison of EnLink Midstream LLC is shown below:
Overall, The stock of EnLink Midstream LLC (NYSE:ENLC, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 82% of the companies in Oil & Gas industry. To learn more about EnLink Midstream LLC stock, you can check out its 30-year Financials here.
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