Transportadora de Gas del Sur SA (TGS, Financial) has experienced a notable daily loss of 5.98%, contrasting with a 3-month gain of 4.26%. With a Loss Per Share of $0.27, investors are left wondering: is the stock significantly overvalued? This article delves into a detailed valuation analysis to answer this pressing question and provide investors with a clearer picture of the stock's intrinsic value.
Company Introduction
Transportadora de Gas del Sur SA is a leading transporter of natural gas in Latin America, with diverse operations spanning from natural gas transportation to the production and commercialization of liquids. Despite its current share price of $13.68, the GF Value suggests a fair value of only $0.93, indicating that the stock may be significantly overvalued. This valuation discrepancy sets the stage for an in-depth analysis of the company's financial health and market position.
Summarize GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of a stock, calculated through historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When a stock's price significantly exceeds the GF Value Line, it is often considered overvalued, which could imply poor future returns. Conversely, a price below this line may indicate better future returns. Currently, Transportadora de Gas del Sur SA's market cap stands at $2.10 billion, with the stock price far above the GF Value Line, suggesting significant overvaluation.
Given this overvaluation, the long-term return of Transportadora de Gas del Sur SA's stock could potentially be much lower than its future business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. Transportadora de Gas del Sur SA's cash-to-debt ratio of 0.82 ranks well within the Oil & Gas industry, placing it higher than 58.08% of its peers. This ratio has earned the company a financial strength rating of 6 out of 10 from GuruFocus, indicating a fair balance sheet.
Profitability and Growth
Transportadora de Gas del Sur SA has demonstrated consistent profitability over the past decade, with an operating margin of 14.02% that surpasses 60.61% of competitors in its industry. This strong profitability has earned a 9 out of 10 ranking, reflecting the company's solid financial performance despite its recent Loss Per Share.
As for growth, it's a pivotal element in valuation. Transportadora de Gas del Sur SA's 3-year average revenue growth rate outperforms 66.16% of the industry, with a 3-year average EBITDA growth rate of 19.6%, ranking above 56.88% of its industry peers.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is an effective way to assess profitability. Transportadora de Gas del Sur SA's ROIC currently stands at 0.06, significantly lower than its WACC of 9.88, which suggests that the company may not be creating value for shareholders.
Conclusion
In conclusion, Transportadora de Gas del Sur SA (TGS, Financial) appears to be significantly overvalued according to our analysis. Despite the company's fair financial condition and strong profitability, its growth ranks well within the Oil & Gas industry. To gain a deeper understanding of Transportadora de Gas del Sur SA's financials, investors can explore the 30-Year Financials here.
To discover high-quality companies that may offer above-average returns with lower risk, consider using the GuruFocus High Quality Low Capex Screener.
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.
