Tsakos Energy Navigation Stock Shows Every Sign Of Being Possible Value Trap

GuruFocus.com
·4 min read

- By GF Value

The stock of Tsakos Energy Navigation (NYSE:TNP, 30-year Financials) gives every indication of being possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $8.89 per share and the market cap of $161.8 million, Tsakos Energy Navigation stock shows every sign of being possible value trap. GF Value for Tsakos Energy Navigation is shown in the chart below.


Tsakos Energy Navigation Stock Shows Every Sign Of Being Possible Value Trap
Tsakos Energy Navigation Stock Shows Every Sign Of Being Possible Value Trap

The reason we think that Tsakos Energy Navigation stock might be a value trap is because Tsakos Energy Navigation has an Altman Z-score of 0.47, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.

Link: These companies may deliever higher future returns at reduced risk.

Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Tsakos Energy Navigation has a cash-to-debt ratio of 0.10, which ranks worse than 74% of the companies in Oil & Gas industry. Based on this, GuruFocus ranks Tsakos Energy Navigation's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Tsakos Energy Navigation over the past years:

Tsakos Energy Navigation Stock Shows Every Sign Of Being Possible Value Trap
Tsakos Energy Navigation Stock Shows Every Sign Of Being Possible Value Trap

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Tsakos Energy Navigation has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $644.1 million and loss of $0.84 a share. Its operating margin is 20.48%, which ranks better than 84% of the companies in Oil & Gas industry. Overall, the profitability of Tsakos Energy Navigation is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Tsakos Energy Navigation over the past years:

Tsakos Energy Navigation Stock Shows Every Sign Of Being Possible Value Trap
Tsakos Energy Navigation Stock Shows Every Sign Of Being Possible Value Trap

Growth is probably one of the most important factors 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. Tsakos Energy Navigation's 3-year average revenue growth rate is in the middle range of the companies in Oil & Gas industry. Tsakos Energy Navigation's 3-year average EBITDA growth rate is -3.2%, which ranks in the middle range of the companies in Oil & Gas industry.

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, Tsakos Energy Navigation's ROIC is 4.40 while its WACC came in at 3.24. The historical ROIC vs WACC comparison of Tsakos Energy Navigation is shown below:

Tsakos Energy Navigation Stock Shows Every Sign Of Being Possible Value Trap
Tsakos Energy Navigation Stock Shows Every Sign Of Being Possible Value Trap

Overall, the stock of Tsakos Energy Navigation (NYSE:TNP, 30-year Financials) shows every sign of being possible value trap. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about Tsakos Energy Navigation stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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