TORM PLC (TRMD, Financial)'s stock has experienced a daily gain of 4.43% and a 3-month gain of 11%. With an Earnings Per Share (EPS) of 9.3, the question arises: is the stock modestly overvalued? In this article, we will delve into a valuation analysis of TORM PLC (TRMD) to answer this question. Keep reading to discover more about the company's financial performance and its intrinsic value.
Company Introduction
TORM PLC operates as a shipping company, owning and operating product tankers. The company is primarily engaged in the transportation of refined oil products including gasoline, jet fuel, naphtha, and diesel oil. With a current stock price of $25.45 and a GF Value of $20.62, TORM PLC appears to be modestly overvalued. This article aims to provide a comprehensive analysis of the company's value, combining financial evaluation with crucial company details.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
TORM PLC (TRMD, Financial) appears to be modestly overvalued according to GuruFocus' valuation method. The stock's fair value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. With a current price of $25.45 per share and a market cap of $2.10 billion, TORM PLC's stock is likely to yield lower returns in the long term due to its overvaluation.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. TORM PLC has a cash-to-debt ratio of 0.23, which ranks worse than 66.6% of 1021 companies in the Oil & Gas industry. Based on this, GuruFocus ranks TORM PLC's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. TORM PLC has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $1.70 billion and Earnings Per Share (EPS) of $9.3. Its operating margin is 48.52%, which ranks better than 89.56% of 967 companies in the Oil & Gas industry. Overall, the profitability of TORM PLC is ranked 7 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of TORM PLC is 24.8%, which ranks better than 77.76% of 850 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 30%, which ranks better than 67.56% of 820 companies in the Oil & Gas industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, TORM PLC's return on invested capital is 35.11, and its cost of capital is 6.35.
Conclusion
In summary, the stock of TORM PLC (TRMD, Financial) appears to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 67.56% of 820 companies in the Oil & Gas industry. For more information about TORM PLC stock, you can check out its 30-Year Financials here.
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