Nabors Industries Ltd (NBR, Financial) has been making headlines with a daily gain of 6.2% and a 3-month gain of 34.32%. However, the company reported a Loss Per Share of 5.87. This raises the question: is the stock fairly valued? In this analysis, we delve into the financial performance and valuation of Nabors Industries to answer this question. Let's dive in.
A Snapshot of Nabors Industries
Nabors Industries Ltd owns and operates one of the world's largest land-based drilling rig fleets and provides offshore platform rigs in the U.S. and international markets among other services. The company operates in over 15 countries with 300 actively marketed rigs for land-based drilling operations and 29 rigs for offshore platform drilling operations. Its key revenue is generated from International Drilling. With a current stock price of $128.66 per share, Nabors Industries has a market cap of $1.20 billion.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal 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. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Nabors Industries' stock appears to be fairly valued based on the GF Value calculation. Consequently, the long-term return of its stock is likely to be close to the rate of its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength: A Closer Look
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. Nabors Industries has a cash-to-debt ratio of 0.17, ranking worse than 72.15% of 1034 companies in the Oil & Gas industry. The overall financial strength of Nabors Industries is ranked 4 out of 10, indicating poor financial strength.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Nabors Industries has been profitable once over the past 10 years. Over the past twelve months, the company had revenue of $3 billion and a Loss Per Share of $5.87. Its operating margin is 7.81%, ranking worse than 51.83% of 984 companies in the Oil & Gas industry. Overall, the profitability of Nabors Industries is ranked 3 out of 10, indicating poor profitability.
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth of Nabors Industries is -11.7%, ranking worse than 84.45% of 862 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is -1.3%, ranking worse than 70.45% of 829 companies in the Oil & Gas industry.
ROIC vs. WACC
Another method of determining a company's profitability is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). Nabors Industries' ROIC is 0.87, and its WACC is 9.25. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders.
Conclusion
In short, the stock of Nabors Industries appears to be fairly valued. The company's financial condition is poor, and its profitability is poor. Its growth ranks worse than 70.45% of 829 companies in the Oil & Gas industry. To learn more about Nabors Industries stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
