The stock of Teekay Tankers (NYSE:TNK, 30-year Financials) shows every sign of being modestly overvalued, 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 $14.26 per share and the market cap of $481.1 million, Teekay Tankers stock is estimated to be modestly overvalued. GF Value for Teekay Tankers is shown in the chart below.
Because Teekay Tankers is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 12.4% over the past five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Teekay Tankers has a cash-to-debt ratio of 0.16, which is worse than 67% of the companies in Oil & Gas industry. The overall financial strength of Teekay Tankers is 5 out of 10, which indicates that the financial strength of Teekay Tankers is fair. This is the debt and cash of Teekay Tankers over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Teekay Tankers has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $886.4 million and earnings of $2.55 a share. Its operating margin is 23.96%, which ranks better than 86% of the companies in Oil & Gas industry. Overall, GuruFocus ranks the profitability of Teekay Tankers at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Teekay Tankers over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Teekay Tankers is 12.4%, which ranks better than 76% of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is 32%, which ranks better than 82% of the companies in Oil & Gas industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Teekay Tankers's ROIC is 10.70 while its WACC came in at 3.89. The historical ROIC vs WACC comparison of Teekay Tankers is shown below:
In closing, the stock of Teekay Tankers (NYSE:TNK, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 82% of the companies in Oil & Gas industry. To learn more about Teekay Tankers stock, you can check out its 30-year Financials here.
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