With a daily gain of 2.94% and a 3-month gain of 14.1%, TORM PLC (TRMD, Financial) has shown significant market performance. Its Earnings Per Share (EPS) stands at 9.3. However, the question remains: Is the stock significantly overvalued? This article provides a comprehensive valuation analysis of TORM PLC (TRMD), encouraging readers to delve into the following analysis for more insights.
Company Introduction
TORM PLC operates as a shipping company, primarily engaged in the transportation of refined oil products. The company owns and operates product tankers and transports clean petroleum products including gasoline, jet fuel, naphtha, diesel oil, and other clean products. It operates within two segments: the Tanker segment, and the Marine Exhaust segment. With a current stock price of $26.59 and a GF Value of $19.42, TORM PLC (TRMD, Financial) appears to be significantly overvalued. This article aims to provide a deeper exploration of the company's value, integrating financial assessment with essential company details.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from GuruFocus' exclusive method. The GF Value Line provides an overview of the fair value that the stock should ideally trade at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
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. At its current price of $26.59 per share and a market cap of $2.20 billion, TORM PLC stock appears to be significantly overvalued. Consequently, the long-term return of its stock is likely to be much lower than its future business growth.
Link: These companies may deliver higher future returns at reduced risk.
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 66.44% of 1028 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
Companies that have been consistently profitable over the long term offer less risk for investors. 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 90.32% of 981 companies in the Oil & Gas industry. Overall, the profitability of TORM PLC is ranked 7 out of 10, indicating fair profitability.
Growth is one of the most important factors in the valuation of a company. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of TORM PLC is24.8%, which ranks better than 77.07% of 859 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 30%, which ranks better than 67.43% of 826 companies in the Oil & Gas industry.
ROIC vs WACC
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. For the past 12 months, TORM PLC's return on invested capital is 35.11, and its cost of capital is 6.49.
Conclusion
In conclusion, the stock of TORM PLC (TRMD, Financial) appears to be significantly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 67.43% of 826 companies in the Oil & Gas industry. To learn more about TORM PLC 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.
