Frontline Plc (FRO, Financial) recently saw a daily gain of 2.33% and a 3-month gain of 22.42%. With an Earnings Per Share (EPS) (EPS) of 3.7, the question arises: Is the stock fairly valued? This article aims to answer this question by analyzing the company's valuation, financial strength, profitability, and growth. We invite you to read on for a comprehensive understanding of Frontline Plc's market value.
Company Overview
Frontline Plc is an international shipping company specializing in the seaborne transportation of crude oil and oil products. It operates mainly through the tankers segment, which includes crude oil tankers and product tankers. The company's geographical area of operation includes the Arabian Gulf, West African, the North Sea, and the Caribbean. Frontline earns revenue through voyage charters, time charters, and a finance lease. It is also involved in the charter, purchase, and sale of vessels.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, based on historical trading multiples, an internal adjustment factor from GuruFocus considering the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
The stock of Frontline Plc (FRO, Financial) appears to be fairly valued according to GuruFocus' valuation method. At its current price of $17.76 per share, Frontline Plc has a market cap of $4 billion, indicating a fair valuation. Because Frontline Plc is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Assessing Financial Strength
Before investing in a company, it is essential to assess its financial strength. Companies with poor financial health pose a higher risk of permanent loss to investors. The cash-to-debt ratio and interest coverage are excellent indicators of a company's financial strength. Frontline Plc has a cash-to-debt ratio of 0.23, ranking lower than 66.7% of 1033 companies in the Oil & Gas industry. Its overall financial strength is 5 out of 10, indicating fair financial health.
Profitability and Growth
Companies consistently profitable over the long term offer less risk to investors. Higher profit margins usually indicate a better investment compared to a company with lower profit margins. Frontline Plc has been profitable for 6 of the past 10 years, with a revenue of $1.90 billion and Earnings Per Share (EPS) of $3.7 over the past twelve months. Its operating margin is 42.82%, ranking better than 85.26% of 984 companies in the Oil & Gas industry. Overall, the profitability of Frontline Plc is ranked 7 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Frontline Plc is 7.8%, ranking lower than 55.63% of 861 companies in the Oil & Gas industry. However, its 3-year average EBITDA growth rate is 19.9%, ranking better than 57.47% of 830 companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. 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 exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Frontline Plc's ROIC was 19.43 while its WACC was 5.79.
Conclusion
In conclusion, the stock of Frontline Plc (FRO, Financial) appears to be fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 57.47% of 830 companies in the Oil & Gas industry. To learn more about Frontline Plc stock, you can check out its 30-Year Financials here.
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