APA Corp (APA, Financial) has been gaining traction in the stock market with a daily gain of 2.6% and a significant 3-month gain of 41.19%. With an Earnings Per Share (EPS) of 4.67, the question arises: is APA (APA) modestly overvalued? This article aims to provide a comprehensive valuation analysis of APA, encouraging readers to delve deeper into the financial health and growth prospects of the company.
Company Introduction
Based in Houston, APA Corp (APA, Financial) is an independent exploration and production company, operating primarily in the U.S., Egypt, the North Sea, and Suriname. As of the end of 2022, APA's proved reserves totaled 890 million barrels of oil equivalent, with net reported production of 400 thousand boe/d that year. The company's current stock price stands at $44.98 per share, with a market capitalization of $13.80 billion.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally trade.
According to GuruFocus' valuation method, APA Corp (APA, Financial) is estimated to be modestly overvalued. This is based on the stock's current price of $44.98 per share and its GF Value of $38.7. If the stock price is significantly above the GF Value Line, it suggests that the stock is overvalued and may yield poor future returns. Conversely, if it is below the GF Value Line, the stock could be undervalued and may offer high future returns.
Given that APA is modestly overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength Analysis
Before investing in a company, it is crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. APA's cash-to-debt ratio stands at 0.03, which is lower than 90.12% of the 1022 companies in the Oil & Gas industry. This suggests that APA's overall financial strength is relatively poor.
Profitability and Growth
Investing in profitable companies, especially those with consistent long-term profitability, is generally less risky. APA has been profitable 5 times over the past 10 years and its operating margin stands at 42.41%, ranking better than 83.97% of 967 companies in the Oil & Gas industry.
One of the key factors in company valuation is growth. Companies that grow faster tend to create more value for shareholders, especially if that growth is profitable. APA's average annual revenue growth is 24.5%, ranking better than 76.88% of 852 companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another way to assess its profitability. When the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, APA's ROIC and WACC stand at 17.81 and 10.37 respectively.
Conclusion
In conclusion, APA Corp (APA, Financial) is estimated to be modestly overvalued. Its financial strength is relatively poor while its profitability is fair. However, its growth ranks better than 99.88% of 825 companies in the Oil & Gas industry. To learn more about APA stock, check out its 30-Year Financials here.
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