Genesis Energy LP (GEL, Financial) recently experienced a daily loss of -6.11%, yet over the past three months, it has seen a gain of 10.41%. With an Earnings Per Share (EPS) of $0.45, investors may wonder if the stock is modestly undervalued. This article delves into the valuation analysis of Genesis Energy LP (GEL) to determine its true market value and potential for future gains.
Company Introduction
Genesis Energy LP is a US-based limited partnership specializing in the midstream segment of the crude oil and natural gas industry. It offers services to producers and various industrial and commercial enterprises. The company's diverse segments include offshore pipeline transportation, sodium minerals and sulfur services, onshore facilities and transportation, and marine transportation, with the majority of its revenue stemming from the offshore pipeline transportation segment. Comparing the current stock price of $11.53 to the GF Value of $13.47, we embark on an extensive analysis to uncover the intrinsic worth of Genesis Energy LP.
Understanding GF Value
The GF Value is an exclusive metric that estimates the intrinsic value of a stock, incorporating historical trading multiples, an adjustment factor based on past returns and growth, and future business performance forecasts. The GF Value Line serves as a benchmark, indicating the fair trading value of the stock. When the stock price gravitates significantly above this line, it may be overvalued, suggesting poorer future returns. Conversely, if the price is well below the GF Value Line, the stock might be undervalued, indicating the potential for higher future returns. For Genesis Energy LP (GEL, Financial), the current price suggests that the stock is modestly undervalued.
Given this valuation, it is likely that the long-term return on Genesis Energy LP's stock could surpass its business growth, presenting a promising opportunity for investors.
Financial Strength Analysis
Investing in companies with robust financial strength typically carries a lower risk of capital loss. It's crucial to evaluate a company's financial health before purchasing its stock. A good start is to examine the cash-to-debt ratio and interest coverage. With a cash-to-debt ratio of 0.01, Genesis Energy LP ranks poorly in comparison to its industry peers. The company's overall financial strength, rated at 3 out of 10 by GuruFocus, suggests that Genesis Energy LP's financial health could be better.
Profitability and Growth Prospects
Consistent profitability is often a sign of a less risky investment. Genesis Energy LP has been profitable for 7 out of the past 10 years, with an operating margin of 11.41%, ranking better than more than half of its industry competitors. The company's profitability is deemed fair, with a score of 6 out of 10. However, when it comes to growth, Genesis Energy LP's revenue growth rate lags behind 63.96% of companies in the Oil & Gas industry, and its EBITDA growth rate is lower than 70.1% of its peers, which could be a concern for future valuation.
ROIC vs. WACC Comparison
Comparing the Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) is another method to assess a company's profitability. A higher ROIC than WACC suggests value creation for shareholders. Over the past year, Genesis Energy LP's ROIC was 6.09, while its WACC stood at 7.75, indicating that the company might not be generating sufficient returns on its investments.
Conclusion
Overall, Genesis Energy LP (GEL, Financial) appears to be modestly undervalued. The company's financial condition is concerning, and its profitability is average. Its growth also ranks below many of its industry counterparts. For a more detailed understanding of Genesis Energy LP's financial health, interested parties can review 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.
