The stock of USA Compression Partners LP (NYSE:USAC, 30-year Financials) is estimated to be fairly valued, 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 $15.52 per share and the market cap of $1.5 billion, USA Compression Partners LP stock gives every indication of being fairly valued. GF Value for USA Compression Partners LP is shown in the chart below.
Because USA Compression Partners LP is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 15.7% over the past three years and is estimated to grow 3.62% annually over the next three to five years.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. USA Compression Partners LP has a cash-to-debt ratio of 0.00, which is in the bottom 10% of the companies in Oil & Gas industry. GuruFocus ranks the overall financial strength of USA Compression Partners LP at 3 out of 10, which indicates that the financial strength of USA Compression Partners LP is poor. This is the debt and cash of USA Compression Partners LP 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. USA Compression Partners LP has been profitable 3 years over the past 10 years. During the past 12 months, the company had revenues of $646.2 million and loss of $0.42 a share. Its operating margin of 22.93% better than 85% of the companies in Oil & Gas industry. Overall, GuruFocus ranks USA Compression Partners LP's profitability as fair. This is the revenue and net income of USA Compression 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. USA Compression Partners LP's 3-year average revenue growth rate is better than 83% of the companies in Oil & Gas industry. USA Compression Partners LP's 3-year average EBITDA growth rate is -14.6%, which ranks worse than 68% 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, USA Compression Partners LP's ROIC was 4.49, while its WACC came in at 10.51. The historical ROIC vs WACC comparison of USA Compression Partners LP is shown below:
In conclusion, the stock of USA Compression Partners LP (NYSE:USAC, 30-year Financials) is believed to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 68% of the companies in Oil & Gas industry. To learn more about USA Compression Partners LP stock, you can check out its 30-year Financials here.
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