Holly Energy Partners LP (HEP, Financial) recently saw a daily gain of 2.32%, and a 3-month gain of 28.21%. The company's Earnings Per Share (EPS) (EPS) stands at 1.72. But, is the stock significantly overvalued? This article aims to provide a comprehensive analysis of Holly Energy Partners LP's valuation, financial strength, profitability, and growth. Let's delve into the details.
Holly Energy Partners LP operates a network of refined products and crude oil pipelines, with attendant terminal assets, in several western and southwestern states. The company has two reportable segments namely Pipelines and Terminals and Refinery Processing Unit. Most of its revenue comes from the Pipelines and Terminals segment. The stock is currently priced at $22.93, but its fair value (GF Value) is only $17.39. This suggests that the stock could be significantly overvalued.
An Overview of GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is derived from historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line provides a visual representation of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given its current price of $22.93 per share and the market cap of $2.90 billion, Holly Energy Partners LP stock appears to be significantly overvalued. As a result, the long-term return of its stock is likely to be much lower than its future business growth.
Holly Energy Partners LP's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Holly Energy Partners LP has a cash-to-debt ratio of 0.01, ranking worse than 95.45% of 1033 companies in the Oil & Gas industry. This suggests a poor balance sheet.
Profitability and Growth of Holly Energy Partners LP
Investing in profitable companies carries less risk. Holly Energy Partners LP has been profitable for 10 years over the past 10 years. The company had revenues of $574.60 million and Earnings Per Share (EPS) of $1.72 in the past 12 months. Its operating margin of 41.17% is better than 83.84% of 984 companies in the Oil & Gas industry.
However, growth is a crucial factor in the valuation of a company. Holly Energy Partners LP's 3-year average revenue growth rate is worse than 76.42% of 861 companies in the Oil & Gas industry. Its 3-year average EBITDA growth rate is -4.4%, ranking worse than 73.73% of 830 companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) can provide insights into its profitability. For the past 12 months, Holly Energy Partners LP's ROIC is 8.85, and its WACC is 8.29.
In summary, Holly Energy Partners LP (HEP, Financial) appears to be significantly overvalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 73.73% of 830 companies in the Oil & Gas industry. To learn more about Holly Energy Partners LP stock, you can check out its 30-Year Financials here.
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