Whiting USA Trust II Stock Is Estimated To Be Significantly Overvalued

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GF Value
Jun 19, 2021
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The stock of Whiting USA Trust II (OTCPK:WHZT, 30-year Financials) appears 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 $0.365 per share and the market cap of $6.7 million, Whiting USA Trust II stock is estimated to be significantly overvalued. GF Value for Whiting USA Trust II is shown in the chart below.

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Because Whiting USA Trust II 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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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company’s financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company’s financial strength. Whiting USA Trust II has a cash-to-debt ratio of 10000.00, which ranks better than 100% of the companies in Oil & Gas industry. Based on this, GuruFocus ranks Whiting USA Trust II’s financial strength as 9 out of 10, suggesting strong balance sheet. This is the debt and cash of Whiting USA Trust II over the past years:

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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. Whiting USA Trust II has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $0.5 million and earnings of $0.015 a share. Its operating margin is -67.57%, which ranks worse than 86% of the companies in Oil & Gas industry. Overall, the profitability of Whiting USA Trust II is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Whiting USA Trust II over the past years:

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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 Whiting USA Trust II is -44.4%, which ranks in the bottom 10% of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is -62.7%, which ranks in the bottom 10% 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, Whiting USA Trust II’s ROIC was 0.00, while its WACC came in at 12.61. The historical ROIC vs WACC comparison of Whiting USA Trust II is shown below:

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To conclude, the stock of Whiting USA Trust II (OTCPK:WHZT, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Oil & Gas industry. To learn more about Whiting USA Trust II stock, you can check out its 30-year Financials here.

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