Transportadora de Gas del Sur SA (TGS, Financial) has recently experienced a daily gain of 5.8%, and a notable 3-month gain of 32.52%. Despite these impressive gains, the company has reported a Loss Per Share of $0.27. This raises a critical question for value investors: Is Transportadora de Gas del Sur SA significantly overvalued? The following valuation analysis seeks to shed light on this query and provide a clear perspective on the company's current market standing.
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 Production and Commercialization of Liquids, among other services. With the majority of its revenue generated in Argentina, the company stands as a significant player in the region's energy sector. The current stock price of $14.77 seems to be at odds with the GF Value of $0.94, suggesting a potential misalignment with its estimated fair value. This discrepancy is the cornerstone of our valuation assessment.
Summarize GF Value
The GF Value is a proprietary measure used to assess the intrinsic value of a stock. It incorporates historical trading multiples, an adjustment factor based on past performance, and projections of future business performance. When a stock trades significantly above this value, it may indicate an overvaluation, suggesting that future returns could be less favorable. Conversely, trading below the GF Value could signal undervaluation and the potential for better returns. Currently, Transportadora de Gas del Sur SA appears to be significantly overvalued, trading at a price considerably higher than its GF Value.
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Financial Strength
Investing in companies with robust financial strength is crucial to avoid the risk of capital loss. Transportadora de Gas del Sur SA's cash-to-debt ratio of 0.82 ranks favorably within the Oil & Gas industry, placing it better than 57.87% of its peers. This financial metric contributes to the company's financial strength rating of 6 out of 10 by GuruFocus, indicating a sound balance sheet.
Profitability and Growth
Profitability is a less risky investment criterion, particularly when a company demonstrates consistent profitability over an extended period. Transportadora de Gas del Sur SA has maintained profitability for 9 out of the past 10 years. With a revenue of $164.30 million and a Loss Per Share of $0.27 over the past twelve months, the company's operating margin of 14.02% ranks well within the industry. This robust profitability is reflected in its rank of 9 out of 10.
Company growth is another vital factor in valuation, and Transportadora de Gas del Sur SA's 3-year average revenue growth rate surpasses 66.05% of its industry counterparts. Its 3-year average EBITDA growth rate of 19.6% also ranks favorably, indicating a promising growth trajectory.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) provides insight into its profitability relative to the capital invested. Ideally, the ROIC should exceed the WACC. For Transportadora de Gas del Sur SA, the ROIC is currently 0.06, while the WACC stands at 9.66, suggesting an area for potential improvement.
Conclusion
In summary, Transportadora de Gas del Sur SA (TGS, Financial) appears to be significantly overvalued according to our analysis. The company exhibits a fair financial condition and strong profitability, with growth rates that are competitive within the Oil & Gas industry. For a more detailed exploration of Transportadora de Gas del Sur SA's financials, interested investors can view the company's 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.
