The stock of Western Midstream Partners LP (NYSE:WES, 30-year Financials) is estimated 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 $20.38 per share and the market cap of $8.4 billion, Western Midstream Partners LP stock shows every sign of being modestly overvalued. GF Value for Western Midstream Partners LP is shown in the chart below.
Because Western Midstream Partners LP is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which is estimated to grow 0.81% annually over the next three to 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. Western Midstream Partners LP has a cash-to-debt ratio of 0.06, which which ranks worse than 81% of the companies in Oil & Gas industry. The overall financial strength of Western Midstream Partners LP is 3 out of 10, which indicates that the financial strength of Western Midstream Partners LP is poor. This is the debt and cash of Western Midstream Partners LP over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Western Midstream Partners LP has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.8 billion and earnings of $1.2 a share. Its operating margin is 46.47%, which ranks better than 94% of the companies in Oil & Gas industry. Overall, the profitability of Western Midstream Partners LP is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Western Midstream Partners LP 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 Western Midstream Partners LP is -16.9%, which ranks worse than 77% of the companies in Oil & Gas industry. The 3-year average EBITDA growth is -15%, which ranks worse than 69% 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, Western Midstream Partners LP's ROIC was 10.93, while its WACC came in at 16.24. The historical ROIC vs WACC comparison of Western Midstream Partners LP is shown below:
In short, the stock of Western Midstream Partners LP (NYSE:WES, 30-year Financials) is estimated to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 69% of the companies in Oil & Gas industry. To learn more about Western Midstream Partners LP stock, you can check out its 30-year Financials here.
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