The stock of Transportadora de Gas del Sur SA (TGS, Financial) experienced a daily loss of 5.47%, with a 3-month loss of 15.28%. Despite this, the company maintains an Earnings Per Share (EPS) of 1.12. This draws our attention to the question: Is the stock significantly overvalued? The following analysis aims to provide a comprehensive answer.
Company Overview
Transportadora de Gas del Sur SA is one of the largest transporters of natural gas in Latin America. The company's operating segments include Natural Gas Transportation, Production and Commercialization of Liquids, Other Services, and Telecommunications. It generates maximum revenue from the Production and Commercialization of Liquids segment, primarily in Argentina. With a current stock price of $10.54 and a market cap of $1.60 billion, the company's GF Value stands at $2.98, indicating a significant overvaluation.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated using historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. When a stock price is significantly above the GF Value Line, it is considered 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. In the case of Transportadora de Gas del Sur SA, the stock is estimated to be significantly overvalued.
Financial Strength
Investors must carefully review a company's financial strength before deciding whether to buy shares. Transportadora de Gas del Sur SA has a cash-to-debt ratio of 0.84, which ranks better than 56.43% of 1035 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Transportadora de Gas del Sur SA's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Transportadora de Gas del Sur SA has been profitable 9 years over the past 10 years. Its operating margin of 28.09% is better than 73.61% of 989 companies in the Oil & Gas industry. The 3-year average annual revenue growth of Transportadora de Gas del Sur SA is 18.8%, which ranks better than 66.55% of 864 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 19.6%, which ranks better than 57.07% of 827 companies in the same industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Transportadora de Gas del Sur SA's ROIC is 8.72, and its cost of capital is 10.48.
Conclusion
In conclusion, the stock of Transportadora de Gas del Sur SA (TGS, Financial) is estimated to be significantly overvalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 57.07% of 827 companies in the Oil & Gas industry. To learn more about Transportadora de Gas del Sur SA stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
