The stock of Hoegh LNG Partners LP (NYSE:HMLP, 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 $17.09 per share and the market cap of $570.1 million, Hoegh LNG Partners LP stock shows every sign of being modestly overvalued. GF Value for Hoegh LNG Partners LP is shown in the chart below.
Because Hoegh LNG Partners LP is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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. Hoegh LNG Partners LP has a cash-to-debt ratio of 0.06, which is worse than 83% of the companies in Oil & Gas industry. The overall financial strength of Hoegh LNG Partners LP is 4 out of 10, which indicates that the financial strength of Hoegh LNG Partners LP is poor. This is the debt and cash of Hoegh LNG 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. Hoegh LNG Partners LP has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $141.2 million and earnings of $1.95 a share. Its operating margin of 58.90% better than 97% of the companies in Oil & Gas industry. Overall, GuruFocus ranks Hoegh LNG Partners LP's profitability as fair. This is the revenue and net income of Hoegh LNG Partners LP 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Hoegh LNG Partners LP is -0.5%, which ranks in the middle range of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is -0.6%, which ranks in the middle range 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, Hoegh LNG Partners LP's ROIC is 7.79 while its WACC came in at 9.27. The historical ROIC vs WACC comparison of Hoegh LNG Partners LP is shown below:
In short, the stock of Hoegh LNG Partners LP (NYSE:HMLP, 30-year Financials) appears to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about Hoegh LNG Partners LP stock, you can check out its 30-year Financials here.
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