The stock of YPF SA (NYSE:YPF, 30-year Financials) gives every indication 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 $3.68 per share and the market cap of $1.4 billion, YPF SA stock is estimated to be possible value trap. GF Value for YPF SA is shown in the chart below.
The reason we think that YPF SA stock might be a value trap is because its Piotroski F-score is only 3, out of the total of 9. Such a low Piotroski F-score indicates the company is getting worse in multiple aspects in the areas of profitability, funding and efficiency. In this case, investors should look beyond the low valuation of the company and make sure it has no long-term risks. To learn more about how the Piotroski F-score measures the business trend of a company, please go here. Furthermore, YPF SA has an Altman Z-score of 0.55, 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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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. YPF SA has a cash-to-debt ratio of 0.12, which is worse than 72% of the companies in Oil & Gas industry. The overall financial strength of YPF SA is 3 out of 10, which indicates that the financial strength of YPF SA is poor. This is the debt and cash of YPF SA 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. YPF SA has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $9.4 billion and loss of $2.726 a share. Its operating margin is -9.72%, which ranks worse than 67% of the companies in Oil & Gas industry. Overall, GuruFocus ranks the profitability of YPF SA at 7 out of 10, which indicates fair profitability. This is the revenue and net income of YPF SA 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 YPF SA is 38.4%, which ranks better than 92% of the companies in Oil & Gas industry. The 3-year average EBITDA growth is 37.2%, which ranks better than 84% 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, YPF SA's ROIC is -5.15 while its WACC came in at 29.83. The historical ROIC vs WACC comparison of YPF SA is shown below:
In short, the stock of YPF SA (NYSE:YPF, 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 better than 84% of the companies in Oil & Gas industry. To learn more about YPF SA stock, you can check out its 30-year Financials here.
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