GasLog Stock Is Believed To Be Possible Value Trap
- By GF Value
The stock of GasLog (NYSE:GLOG, 30-year Financials) shows every sign 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 $5.81 per share and the market cap of $553.1 million, GasLog stock is believed to be possible value trap. GF Value for GasLog is shown in the chart below.
The reason we think that GasLog stock might be a value trap is because GasLog has an Altman Z-score of 0.25, 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.
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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. GasLog has a cash-to-debt ratio of 0.06, which ranks worse than 82% of the companies in Oil & Gas industry. Based on this, GuruFocus ranks GasLog's financial strength as 2 out of 10, suggesting poor balance sheet. This is the debt and cash of GasLog over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. GasLog has been profitable 7 years over the past 10 years. During the past 12 months, the company had revenues of $674.1 million and loss of $0.73 a share. Its operating margin of 41.46% better than 92% of the companies in Oil & Gas industry. Overall, GuruFocus ranks GasLog's profitability as fair. This is the revenue and net income of GasLog over the past years:
Growth is probably the most important 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. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of GasLog is 5.8%, which ranks better than 68% of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is -4%, which ranks in the middle range of the companies in Oil & Gas industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, GasLog's return on invested capital is 5.11, and its cost of capital is 5.21. The historical ROIC vs WACC comparison of GasLog is shown below:
In closing, The stock of GasLog (NYSE:GLOG, 30-year Financials) is estimated to be 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 GasLog stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.