The stock of Dawson Geophysical Co (NAS:DWSN, 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 $2.45 per share and the market cap of $57.5 million, Dawson Geophysical Co stock gives every indication of being significantly overvalued. GF Value for Dawson Geophysical Co is shown in the chart below.
Because Dawson Geophysical Co 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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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Dawson Geophysical Co has a cash-to-debt ratio of 6.76, which which ranks better than 76% of the companies in Oil & Gas industry. The overall financial strength of Dawson Geophysical Co is 7 out of 10, which indicates that the financial strength of Dawson Geophysical Co is fair. This is the debt and cash of Dawson Geophysical Co 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. Dawson Geophysical Co has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $86.1 million and loss of $0.56 a share. Its operating margin is -16.25%, which ranks worse than 72% of the companies in Oil & Gas industry. Overall, the profitability of Dawson Geophysical Co is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of Dawson Geophysical Co 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 Dawson Geophysical Co is -18.8%, which ranks worse than 80% of the companies in Oil & Gas industry. The 3-year average EBITDA growth is 20.5%, which ranks better than 73% 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, Dawson Geophysical Co's return on invested capital is -17.80, and its cost of capital is 10.98. The historical ROIC vs WACC comparison of Dawson Geophysical Co is shown below:
In summary, Dawson Geophysical Co (NAS:DWSN, 30-year Financials) stock gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 73% of the companies in Oil & Gas industry. To learn more about Dawson Geophysical Co stock, you can check out its 30-year Financials here.
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