APA Corp (APA, Financial), an independent exploration and production company, reported a daily loss of 1.47% and a 3-month gain of 23.82%. With an Earnings Per Share (EPS) (EPS) of 4.67, the question arises: Is APA (APA) fairly valued? This article aims to answer this question by providing a comprehensive valuation analysis of APA Corp (APA). Read on to gain a deeper understanding of the company's value, financial strength, profitability, and growth prospects.
Company Overview
Based in Houston, APA Corp operates primarily in the U.S., Egypt, the North Sea, and Suriname. As of the end of 2022, the company's proved reserves totaled 890 million barrels of oil equivalent, with net reported production of 400 thousand boe/d that year (64% of which was oil and natural gas liquids, with the remainder being natural gas).
At the current stock price of $41.99 per share, the GF Value of APA Corp (APA, Financial) stands at $38.98, indicating that the stock is fairly valued. The following analysis will delve deeper into the financials and performance of APA Corp.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on the summary page provides an overview of the fair value at which the stock should ideally be traded.
If the stock price is significantly above the GF Value Line, the stock is likely overvalued, and its future returns may be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, and its future returns may be higher. In the case of APA Corp (APA, Financial), the stock appears to be fairly valued, indicating that its long-term return is likely to be close to the rate of its business growth.
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Assessing APA's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss for investors. Thus, it's crucial to assess a company's financial strength before purchasing its shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. APA Corp has a cash-to-debt ratio of 0.03, ranking worse than 90.18% of 1018 companies in the Oil & Gas industry. This indicates that APA's overall financial strength is poor, with a score of 4 out of 10.
Profitability and Growth
Consistent profitability over the long term reduces investment risk. Higher profit margins typically indicate a better investment compared to companies with lower profit margins. APA Corp has been profitable for 5 out of the past 10 years. In the past twelve months, the company generated revenue of $9.20 billion and an EPS of $4.67. Its operating margin is 42.41%, ranking better than 83.99% of 968 companies in the Oil & Gas industry. This indicates that APA's profitability is fair, with a rank of 7 out of 10.
Growth is a crucial factor in a company's valuation. Faster-growing companies create more value for shareholders, especially if the growth is profitable. APA Corp's 3-year average annual revenue growth rate is 24.5%, ranking better than 76.91% of 853 companies in the Oil & Gas industry. Its 3-year average EBITDA growth rate is 402.8%, ranking better than 99.88% of 826 companies in the same industry.
Another measure of a company's profitability is the comparison between its return on invested capital (ROIC) and the weighted cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to finance its assets. Ideally, ROIC should be higher than WACC. For APA, the ROIC for the past 12 months is 17.81, and its WACC is 10.44.
Conclusion
Overall, APA Corp (APA, Financial) appears to be fairly valued. Despite its poor financial strength, the company's profitability is fair, and its growth prospects are promising, ranking better than 99.88% of 826 companies in the Oil & Gas industry. To learn more about APA Corp, you can check out its 30-Year Financials here.
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