The stock of PetroChina Co (NYSE:PTR, 30-year Financials) shows every sign of being fairly valued, 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 $39.73 per share and the market cap of $72.7 billion, PetroChina Co stock shows every sign of being fairly valued. GF Value for PetroChina Co is shown in the chart below.
Because PetroChina Co is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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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. PetroChina Co has a cash-to-debt ratio of 0.27, which is in the middle range of the companies in Oil & Gas industry. The overall financial strength of PetroChina Co is 5 out of 10, which indicates that the financial strength of PetroChina Co is fair. This is the debt and cash of PetroChina Co 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. PetroChina Co has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $294.7 billion and earnings of $5.164 a share. Its operating margin of 6.02% in the middle range of the companies in Oil & Gas industry. Overall, GuruFocus ranks PetroChina Co's profitability as fair. This is the revenue and net income of PetroChina Co 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 PetroChina Co is -1.6%, which ranks in the middle range of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is -2.1%, which ranks worse than 84% 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, PetroChina Co's return on invested capital is 3.56, and its cost of capital is 4.27. The historical ROIC vs WACC comparison of PetroChina Co is shown below:
In closing, The stock of PetroChina Co (NYSE:PTR, 30-year Financials) is estimated to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 84% of the companies in Oil & Gas industry. To learn more about PetroChina Co stock, you can check out its 30-year Financials here.
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