The stock of Teekay Tankers (NYSE:TNK, 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 $13.8649 per share and the market cap of $467.8 million, Teekay Tankers stock appears to be modestly overvalued. GF Value for Teekay Tankers is shown in the chart below.
Because Teekay Tankers is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 12.4% over the past 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. Teekay Tankers has a cash-to-debt ratio of 0.16, which is worse than 68% of the companies in Oil & Gas industry. The overall financial strength of Teekay Tankers is 5 out of 10, which indicates that the financial strength of Teekay Tankers is fair. This is the debt and cash of Teekay Tankers 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. Teekay Tankers has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $886.4 million and earnings of $2.55 a share. Its operating margin of 23.96% better than 85% of the companies in Oil & Gas industry. Overall, GuruFocus ranks Teekay Tankers's profitability as fair. This is the revenue and net income of Teekay Tankers 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. Teekay Tankers's 3-year average revenue growth rate is better than 79% of the companies in Oil & Gas industry. Teekay Tankers's 3-year average EBITDA growth rate is 32%, which ranks better than 82% of the companies in Oil & Gas industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Teekay Tankers's return on invested capital is 10.70, and its cost of capital is 3.99. The historical ROIC vs WACC comparison of Teekay Tankers is shown below:
In conclusion, the stock of Teekay Tankers (NYSE:TNK, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 82% of the companies in Oil & Gas industry. To learn more about Teekay Tankers stock, you can check out its 30-year Financials here.
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