The stock of Dynagas LNG Partners LP (NYSE:DLNG, 30-year Financials) is believed to be fairly valued, 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 $2.79 per share and the market cap of $99.4 million, Dynagas LNG Partners LP stock is believed to be fairly valued. GF Value for Dynagas LNG Partners LP is shown in the chart below.
Because Dynagas LNG Partners LP 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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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. Dynagas LNG Partners LP has a cash-to-debt ratio of 0.12, which is worse than 71% of the companies in Oil & Gas industry. GuruFocus ranks the overall financial strength of Dynagas LNG Partners LP at 3 out of 10, which indicates that the financial strength of Dynagas LNG Partners LP is poor. This is the debt and cash of Dynagas LNG Partners LP over the past years:
It poses less risk to invest in profitable companies, 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. Dynagas LNG Partners LP has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $137.2 million and earnings of $0.63 a share. Its operating margin is 46.85%, which ranks better than 95% of the companies in Oil & Gas industry. Overall, GuruFocus ranks the profitability of Dynagas LNG Partners LP at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Dynagas LNG Partners LP over the past years:
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 Dynagas LNG Partners LP is -1.4%, which ranks in the middle range of the companies in Oil & Gas industry. The 3-year average EBITDA growth is 1%, which ranks in the middle range of the companies in Oil & Gas industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Dynagas LNG Partners LP's return on invested capital is 6.71, and its cost of capital is 5.54. The historical ROIC vs WACC comparison of Dynagas LNG Partners LP is shown below:
In conclusion, the stock of Dynagas LNG Partners LP (NYSE:DLNG, 30-year Financials) shows every sign of being fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about Dynagas LNG Partners LP stock, you can check out its 30-year Financials here.
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