The stock of Golar LNG Partners LP (NAS:GMLP, 30-year Financials) shows every sign of being 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 $3.55 per share and the market cap of $246 million, Golar LNG Partners LP stock appears to be possible value trap. GF Value for Golar LNG Partners LP is shown in the chart below.
The reason we think that Golar LNG Partners LP stock might be a value trap is because Golar LNG Partners LP has an Altman Z-score of -0.02, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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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. Golar LNG Partners LP has a cash-to-debt ratio of 0.04, which which ranks worse than 86% of the companies in Oil & Gas industry. The overall financial strength of Golar LNG Partners LP is 3 out of 10, which indicates that the financial strength of Golar LNG Partners LP is poor. This is the debt and cash of Golar 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. Golar LNG Partners LP has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $284.7 million and earnings of $0.199 a share. Its operating margin is 43.86%, which ranks better than 93% of the companies in Oil & Gas industry. Overall, GuruFocus ranks the profitability of Golar LNG Partners LP at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Golar LNG Partners LP over the past years:
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. Golar LNG Partners LP's 3-year average revenue growth rate is worse than 71% of the companies in Oil & Gas industry. Golar LNG Partners LP's 3-year average EBITDA growth rate is -20.4%, which ranks worse than 74% of the companies in Oil & Gas industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Golar LNG Partners LP's ROIC is 1.39 while its WACC came in at 3.02. The historical ROIC vs WACC comparison of Golar LNG Partners LP is shown below:
Overall, The stock of Golar LNG Partners LP (NAS:GMLP, 30-year Financials) gives every indication of being possible value trap. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 74% of the companies in Oil & Gas industry. To learn more about Golar LNG Partners LP stock, you can check out its 30-year Financials here.
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