World Kinect Corp (WKC, Financial) experienced a daily loss of 8.1% and a 3-month loss of 21.11%, with an Earnings Per Share (EPS) of 1.85. This raises the question: is the stock significantly undervalued? This article presents a comprehensive valuation analysis of World Kinect (WKC) to answer this question. Read on to understand the company's intrinsic value and make informed investment decisions.
Company Introduction
World Kinect Corp is a global energy management company involved in providing supply fulfillment, energy procurement advisory services, and transaction and payment management solutions to commercial and industrial customers worldwide. It sells and delivers liquid fuels, natural gas, electricity, renewable energy, and other sustainability solutions. The company's stock price is currently $18.15, while its GF Value, an estimation of fair value, stands at $48.48. This suggests that the stock might be significantly undervalued. Let's delve deeper into the company's value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. It is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
The stock of World Kinect (WKC, Financial) appears to be significantly undervalued based on GuruFocus' valuation method. GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. At its current price of $18.15 per share, World Kinect has a market cap of $1.10 billion and the stock appears to be significantly undervalued.
Because World Kinect is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength. World Kinect has a cash-to-debt ratio of 0.34, which ranks worse than 58.99% of 1034 companies in the Oil & Gas industry. The overall financial strength of World Kinect is 7 out of 10, which indicates that the financial strength of World Kinect is fair.
Profitability and Growth
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. World Kinect has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $53 billion and Earnings Per Share (EPS) of $1.85. Its operating margin is 0.6%, which ranks worse than 72.77% of 988 companies in the Oil & Gas industry. Overall, GuruFocus ranks the profitability of World Kinect at 7 out of 10, which indicates fair profitability.
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 World Kinect is 19.4%, which ranks better than 68.68% of 862 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is -1%, which ranks worse than 70.42% of 825 companies in the Oil & Gas industry.
ROIC vs WACC
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, World Kinect's return on invested capital is 6.4, and its cost of capital is 12.78.
Conclusion
In conclusion, the stock of World Kinect (WKC, Financial) appears to be significantly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 70.42% of 825 companies in the Oil & Gas industry. To learn more about World Kinect stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
