Teekay Tankers Ltd (TNK, Financial) has seen a daily gain of 3.97%, and a 3-month gain of 17.78%. Its Earnings Per Share (EPS) stands at 15.51. Despite these positive figures, the question arises: is the stock significantly overvalued? To answer this, we delve into a comprehensive valuation analysis of Teekay Tankers (TNK). Read on for an in-depth exploration of its intrinsic value, financial strength, profitability, and growth prospects.
Company Introduction
Teekay Tankers Ltd is a significant player in the global oil and natural gas industries, operating as a provider of marine services and an operator of medium-sized oil tankers. The company's operations span two segments: tanker and ship-to-ship transfer. The tanker segment, which consists of crude oil and product tankers under various contracts, generates the majority of its revenue. Comparing the stock price of $42.43 to the GF Value of $28.84, we find that the stock appears to be significantly overvalued.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor (considering past performance and growth), and future business performance estimates. It serves as an indicator of the fair trading value of a stock. A stock price significantly above the GF Value Line suggests overvaluation and potential poor future returns. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, indicating higher future returns.
Based on this method, Teekay Tankers (TNK, Financial) appears to be significantly overvalued. The current price of $42.43 per share is considerably higher than the GF Value of $28.84. Consequently, the long-term return of its stock is likely to be much lower than its future business growth.
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Teekay Tankers' Financial Strength
Investing in companies with low financial strength can result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before buying shares. Teekay Tankers' cash-to-debt ratio of 0.6 ranks better than 52.22% of 1034 companies in the Oil & Gas industry, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk. Teekay Tankers has been profitable for 6 out of the past 10 years. With revenues of $1.40 billion and an operating margin of 40.05% (better than 83.23% of companies in the Oil & Gas industry), the company's profitability appears fair.
However, growth is a critical factor in a company's valuation. Teekay Tankers' 3-year average revenue growth rate is worse than 63.69% of companies in the Oil & Gas industry. Its 3-year average EBITDA growth rate is 12.6%, ranking worse than 51.27% of companies in the industry.
ROIC vs. WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can evaluate its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Teekay Tankers' ROIC stands at 36.56%, significantly higher than its WACC of 5.2%.
Conclusion
In conclusion, Teekay Tankers (TNK, Financial) appears to be significantly overvalued. Despite its strong financial condition and fair profitability, its growth ranks worse than 51.27% of companies in the Oil & Gas industry. For more detailed financials of Teekay Tankers, check out its 30-Year Financials here.
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