The stock of Smart Sand (NAS:SND, 30-year Financials) appears to be significantly 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 $2.4 per share and the market cap of $104.2 million, Smart Sand stock appears to be significantly overvalued. GF Value for Smart Sand is shown in the chart below.
Because Smart Sand is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Link: These companies may deliever higher future returns at reduced risk.
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. Smart Sand has a cash-to-debt ratio of 0.19, which which ranks in the middle range of the companies in Oil & Gas industry. The overall financial strength of Smart Sand is 4 out of 10, which indicates that the financial strength of Smart Sand is poor. This is the debt and cash of Smart Sand over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Smart Sand has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $122.3 million and earnings of $0.958 a share. Its operating margin is -7.61%, which ranks in the middle range of the companies in Oil & Gas industry. Overall, the profitability of Smart Sand is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Smart Sand 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Smart Sand is -3.7%, which ranks in the middle range of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is 22.7%, which ranks better than 76% of the companies in Oil & Gas industry.
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, Smart Sand's return on invested capital is -3.88, and its cost of capital is 9.92. The historical ROIC vs WACC comparison of Smart Sand is shown below:
In conclusion, the stock of Smart Sand (NAS:SND, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 76% of the companies in Oil & Gas industry. To learn more about Smart Sand stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
