The stock of Tetra Technologies (NYSE:TTI, 30-year Financials) is believed to be significantly 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 $3.45 per share and the market cap of $436.7 million, Tetra Technologies stock shows every sign of being significantly overvalued. GF Value for Tetra Technologies is shown in the chart below.
Because Tetra Technologies is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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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. Tetra Technologies has a cash-to-debt ratio of 0.27, which which ranks in the middle range of the companies in Oil & Gas industry. The overall financial strength of Tetra Technologies is 2 out of 10, which indicates that the financial strength of Tetra Technologies is poor. This is the debt and cash of Tetra Technologies over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Tetra Technologies has been profitable 3 years over the past 10 years. During the past 12 months, the company had revenues of $377.7 million and loss of $0.4 a share. Its operating margin of -2.42% in the middle range of the companies in Oil & Gas industry. Overall, GuruFocus ranks Tetra Technologies's profitability as poor. This is the revenue and net income of Tetra Technologies 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 Tetra Technologies is -22%, which ranks worse than 84% of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is -7.5%, which ranks in the middle range 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, Tetra Technologies's ROIC was -0.93, while its WACC came in at 16.91.
To conclude, the stock of Tetra Technologies (NYSE:TTI, 30-year Financials) appears to be significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about Tetra Technologies stock, you can check out its 30-year Financials here.
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