The stock of Global Ship Lease (NYSE:GSL, 30-year Financials) is estimated to be 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 $14.76 per share and the market cap of $539.2 million, Global Ship Lease stock appears to be significantly overvalued. GF Value for Global Ship Lease is shown in the chart below.
Because Global Ship Lease is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Global Ship Lease has a cash-to-debt ratio of 0.11, which is worse than 78% of the companies in Transportation industry. GuruFocus ranks the overall financial strength of Global Ship Lease at 3 out of 10, which indicates that the financial strength of Global Ship Lease is poor. This is the debt and cash of Global Ship Lease 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. Global Ship Lease has been profitable 6 years over the past 10 years. During the past 12 months, the company had revenues of $282.8 million and earnings of $1.783 a share. Its operating margin of 40.13% better than 96% of the companies in Transportation industry. Overall, GuruFocus ranks Global Ship Lease's profitability as fair. This is the revenue and net income of Global Ship Lease 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 Global Ship Lease is -11.5%, which ranks worse than 83% of the companies in Transportation industry. The 3-year average EBITDA growth rate is 40.9%, which ranks better than 91% of the companies in Transportation 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, Global Ship Lease's ROIC was 8.89, while its WACC came in at 10.07. The historical ROIC vs WACC comparison of Global Ship Lease is shown below:
In conclusion, the stock of Global Ship Lease (NYSE:GSL, 30-year Financials) appears to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 91% of the companies in Transportation industry. To learn more about Global Ship Lease stock, you can check out its 30-year Financials here.
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