The stock of Dorian LPG (NYSE:LPG, 30-year Financials) gives every indication of being modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock 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 $12.99 per share and the market cap of $533.7 million, Dorian LPG stock appears to be modestly undervalued. GF Value for Dorian LPG is shown in the chart below.
Because Dorian LPG is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 29.1% over the past five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company’s financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Dorian LPG has a cash-to-debt ratio of 0.13, which which ranks worse than 72% of the companies in Oil & Gas industry. The overall financial strength of Dorian LPG is 4 out of 10, which indicates that the financial strength of Dorian LPG is poor. This is the debt and cash of Dorian LPG over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Dorian LPG has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $315.9 million and earnings of $1.89 a share. Its operating margin of 36.75% better than 91% of the companies in Oil & Gas industry. Overall, GuruFocus ranks Dorian LPG’s profitability as fair. This is the revenue and net income of Dorian LPG over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Dorian LPG is 29.1%, which ranks better than 92% of the companies in Oil & Gas industry. The 3-year average EBITDA growth is 42.2%, which ranks better than 88% of the companies in Oil & Gas industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Dorian LPG’s return on invested capital is 7.54, and its cost of capital is 6.55. The historical ROIC vs WACC comparison of Dorian LPG is shown below:
To conclude, Dorian LPG (NYSE:LPG, 30-year Financials) stock gives every indication of being modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 88% of the companies in Oil & Gas industry. To learn more about Dorian LPG stock, you can check out its 30-year Financials here.
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