The stock of Ardmore Shipping (NYSE:ASC, 30-year Financials) appears to be 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 $3.92 per share and the market cap of $130.7 million, Ardmore Shipping stock shows every sign of being modestly undervalued. GF Value for Ardmore Shipping is shown in the chart below.
Because Ardmore Shipping is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 4.2% 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. Ardmore Shipping has a cash-to-debt ratio of 0.14, which which ranks worse than 73% of the companies in Transportation industry. The overall financial strength of Ardmore Shipping is 4 out of 10, which indicates that the financial strength of Ardmore Shipping is poor. This is the debt and cash of Ardmore Shipping 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. Ardmore Shipping has been profitable 3 years over the past 10 years. During the past 12 months, the company had revenues of $220.1 million and loss of $0.179 a share. Its operating margin of 11.27% better than 73% of the companies in Transportation industry. Overall, GuruFocus ranks Ardmore Shipping's profitability as poor. This is the revenue and net income of Ardmore Shipping over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Ardmore Shipping's 3-year average revenue growth rate is in the middle range of the companies in Transportation industry. Ardmore Shipping's 3-year average EBITDA growth rate is 2.3%, which ranks in the middle range of the companies in Transportation 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, Ardmore Shipping's ROIC is 3.63 while its WACC came in at 5.27. The historical ROIC vs WACC comparison of Ardmore Shipping is shown below:
In conclusion, the stock of Ardmore Shipping (NYSE:ASC, 30-year Financials) appears to be modestly undervalued. The company's financial condition is poor and its profitability is poor. Its growth ranks in the middle range of the companies in Transportation industry. To learn more about Ardmore Shipping stock, you can check out its 30-year Financials here.
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