Suburban Propane Partners LP (SPH, Financial) has recently experienced a daily loss of 5.42%, yet it boasts a 3-month gain of 28.38%. With an Earnings Per Share (EPS) of $1.92, investors are faced with the question: is the stock modestly overvalued? This article delves into the valuation analysis of Suburban Propane Partners LP (SPH), providing insights into whether its current market price truly reflects its intrinsic value. Read on for a detailed examination of the company's financial health and growth prospects.
Suburban Propane Partners LP distributes propane and other refined fuels across the United States, with a significant presence on both the East and West Coasts. The company also markets natural gas and electricity in deregulated markets of New York and Pennsylvania. Operating in three segments—Propane; Fuel Oil and Refined Fuels; and Natural Gas and Electricity—it generates the most revenue from the Propane division. With a current stock price of $18.32 and a market cap of $1.20 billion, we compare this to the GF Value, an estimation of fair value, to explore the company's valuation.
Understanding the GF Value
The GF Value is a unique measure that reflects the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides a visual guide to the stock's fair trading value. When a stock's price is significantly above this line, it is considered overvalued and may yield poorer future returns. Conversely, a price below the line suggests a potentially higher return.
Suburban Propane Partners LP (SPH, Financial) appears modestly overvalued based on GuruFocus Value calculations. The current price of $18.32 per share suggests that the stock may offer lower long-term returns compared to the company's business growth.
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Financial Strength and Risks
Investors must consider a company's financial strength to avoid the risk of permanent capital loss. Suburban Propane Partners LP's cash-to-debt ratio is notably low, ranking below 0% of its industry peers. With a financial strength rating of 4 out of 10, the company's fiscal health is less than ideal.
Profitability and Growth Prospects
A company's profitability is crucial, and Suburban Propane Partners LP has maintained profitability over the past decade. With an operating margin of 14.47%, it stands above more than half of its competitors. However, the company's growth rates for revenue and EBITDA are below industry medians, indicating potential challenges ahead.
ROIC vs. WACC: A Measure of Value Creation
An effective way to gauge a company's value creation is by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Suburban Propane Partners LP's ROIC surpasses its WACC, suggesting that the company is generating value for its shareholders.
Conclusion: Is Suburban Propane Partners LP (SPH, Financial) a Good Investment?
In summary, Suburban Propane Partners LP (SPH) seems modestly overvalued. Its financial condition raises concerns, yet its profitability remains fair. The company's growth falls behind a significant portion of its industry, which may affect its long-term stock performance. For a deeper understanding of Suburban Propane Partners LP's financials, investors can view 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.
