StealthGas Stock Is Believed To Be Modestly Overvalued

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GF Value
Apr 11, 2021
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The stock of StealthGas (NAS:GASS, 30-year Financials) is believed to be modestly 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 $2.86 per share and the market cap of $108.3 million, StealthGas stock shows every sign of being modestly overvalued. GF Value for StealthGas is shown in the chart below.

StealthGas GF Value Chart

Because StealthGas is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 0.1% over the past five years.

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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. StealthGas has a cash-to-debt ratio of 0.08, which which ranks worse than 84% of the companies in Transportation industry. The overall financial strength of StealthGas is 4 out of 10, which indicates that the financial strength of StealthGas is poor. This is the debt and cash of StealthGas over the past years:

debt and cash

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. StealthGas has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $145.1 million and earnings of $0.25 a share. Its operating margin is 19.22%, which ranks better than 84% of the companies in Transportation industry. Overall, the profitability of StealthGas is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of StealthGas over the past years:

Revnue and Net Income

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. StealthGas's 3-year average revenue growth rate is in the middle range of the companies in Transportation industry. StealthGas's 3-year average EBITDA growth rate is 10.7%, which ranks better than 67% 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, StealthGas's ROIC was 2.93, while its WACC came in at 6.34. The historical ROIC vs WACC comparison of StealthGas is shown below:

ROIC vs WACC

To conclude, StealthGas (NAS:GASS, 30-year Financials) stock appears to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 67% of the companies in Transportation industry. To learn more about StealthGas stock, you can check out its 30-year Financials here.

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