The stock of Natural Gas Services Group (NYSE:NGS, 30-year Financials) appears 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 $10.26 per share and the market cap of $139.6 million, Natural Gas Services Group stock is believed to be fairly valued. GF Value for Natural Gas Services Group is shown in the chart below.
Because Natural Gas Services Group is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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. Natural Gas Services Group has a cash-to-debt ratio of 71.52, which ranks better than 84% of the companies in Oil & Gas industry. Based on this, GuruFocus ranks Natural Gas Services Group’s financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Natural Gas Services Group over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Natural Gas Services Group has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $68.6 million and loss of $0.2 a share. Its operating margin is -4.96%, which ranks in the middle range of the companies in Oil & Gas industry. Overall, GuruFocus ranks the profitability of Natural Gas Services Group at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Natural Gas Services Group 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. Natural Gas Services Group’s 3-year average revenue growth rate is in the middle range of the companies in Oil & Gas industry. Natural Gas Services Group’s 3-year average EBITDA growth rate is -1.3%, which ranks in the middle range of the companies in Oil & Gas industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Natural Gas Services Group’s return on invested capital is -1.19, and its cost of capital is 14.23. The historical ROIC vs WACC comparison of Natural Gas Services Group is shown below:
Overall, Natural Gas Services Group (NYSE:NGS, 30-year Financials) stock is estimated to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about Natural Gas Services Group stock, you can check out its 30-year Financials here.
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