The stock of Euronav NV (NYSE:EURN, 30-year Financials) is believed to be possible value trap, 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 $8.435 per share and the market cap of $1.7 billion, Euronav NV stock shows every sign of being possible value trap. GF Value for Euronav NV is shown in the chart below.
The reason we think that Euronav NV stock might be a value trap is because
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. Euronav NV has a cash-to-debt ratio of 0.13, which is worse than 71% of the companies in Oil & Gas industry. GuruFocus ranks the overall financial strength of Euronav NV at 5 out of 10, which indicates that the financial strength of Euronav NV is fair. This is the debt and cash of Euronav NV 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. Euronav NV has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $1.2 billion and earnings of $2.25 a share. Its operating margin is 42.39%, which ranks better than 93% of the companies in Oil & Gas industry. Overall, GuruFocus ranks the profitability of Euronav NV at 4 out of 10, which indicates poor profitability. This is the revenue and net income of Euronav NV 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 Euronav NV is 20.7%, which ranks better than 85% of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is 39.1%, which ranks better than 87% of the companies in Oil & Gas 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, Euronav NV's ROIC was 14.33, while its WACC came in at 3.12. The historical ROIC vs WACC comparison of Euronav NV is shown below:
In conclusion, The stock of Euronav NV (NYSE:EURN, 30-year Financials) shows every sign of being possible value trap. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 87% of the companies in Oil & Gas industry. To learn more about Euronav NV stock, you can check out its 30-year Financials here.
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