Permian Resources (PR, Financial) experienced a daily loss of 6.25%, yet boasted a 3-month gain of 16.85%. With an Earnings Per Share (EPS) of 1.48, it's worth questioning if the stock is modestly undervalued. The valuation analysis that follows will provide a comprehensive answer to this question.
Introduction to Permian Resources Corp (PR, Financial)
Permian Resources Corp is an independent oil and natural gas company. It is committed to generating outsized returns to stakeholders through the responsible acquisition, optimization, and development of oil and liquids-rich natural gas assets. The company's current stock price is $12.6, while its GF Value, an estimation of the stock's fair value, stands at $15.3. This comparison indicates that Permian Resources may be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure reflecting the 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 stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus' valuation method, Permian Resources (PR, Financial) is believed to be modestly undervalued. The stock's fair value is estimated based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $12.6 per share, Permian Resources stock is believed to be modestly undervalued. As a result, the long-term return of its stock is likely to be higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength of Permian Resources
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Permian Resources has a cash-to-debt ratio of 0.01, which is worse than 95.61% of 1026 companies in the Oil & Gas industry. GuruFocus ranks the overall financial strength of Permian Resources at 4 out of 10, which indicates that the financial strength of Permian Resources is poor.
Profitability and Growth of Permian Resources
Investing in profitable companies is less risky, especially if they demonstrate consistent profitability over the long term. Companies with high profit margins are generally safer investments than those with low profit margins. Permian Resources has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $2.60 billion and Earnings Per Share (EPS) of $1.48. Its operating margin is 42.29%, which ranks better than 85.19% of 979 companies in the Oil & Gas industry. Overall, the profitability of Permian Resources is ranked 7 out of 10, which indicates fair profitability.
Growth is a critical 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. 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. Permian Resources's 3-year average revenue growth rate is better than 76.63% of 860 companies in the Oil & Gas industry. Permian Resources's 3-year average EBITDA growth rate is 31.8%, which ranks better than 70.1% of 826 companies in the Oil & Gas industry.
ROIC vs WACC
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, Permian Resources's ROIC is 12.64 while its WACC came in at 12.83.
Conclusion
In summary, the stock of Permian Resources (PR, Financial) is believed to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 70.1% of 826 companies in the Oil & Gas industry. To learn more about Permian Resources stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above average returns, please check out GuruFocus High Quality Low Capex Screener.
