The stock of Viper Energy Partners LP (NAS:VNOM, 30-year Financials) appears to be modestly undervalued, 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 $18.37 per share and the market cap of $2.9 billion, Viper Energy Partners LP stock is estimated to be modestly undervalued. GF Value for Viper Energy Partners LP is shown in the chart below.
Because Viper Energy Partners LP is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 30.8% over the past three years and is estimated to grow 9.40% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Viper Energy Partners LP has a cash-to-debt ratio of 0.03, which is worse than 88% of the companies in Oil & Gas industry. The overall financial strength of Viper Energy Partners LP is 4 out of 10, which indicates that the financial strength of Viper Energy Partners LP is poor. This is the debt and cash of Viper Energy Partners LP 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. Viper Energy Partners LP has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $249.6 million and loss of $2.84 a share. Its operating margin is 48.93%, which ranks better than 95% of the companies in Oil & Gas industry. Overall, the profitability of Viper Energy Partners LP is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Viper Energy 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. Viper Energy Partners LP's 3-year average revenue growth rate is better than 91% of the companies in Oil & Gas industry. Viper Energy Partners LP's 3-year average EBITDA growth rate is -6.4%, which ranks in the middle range 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, Viper Energy Partners LP's ROIC is 17.84 while its WACC came in at 18.43. The historical ROIC vs WACC comparison of Viper Energy Partners LP is shown below:
In short, the stock of Viper Energy Partners LP (NAS:VNOM, 30-year Financials) is believed to be modestly undervalued. 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 Viper Energy Partners LP stock, you can check out its 30-year Financials here.
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