TotalEnergies SE Stock Gives Every Indication Of Being Modestly Overvalued
- By GF Value
The stock of TotalEnergies SE (NYSE:TOT, 30-year Financials) gives every indication of being modestly overvalued, 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 $48.37 per share and the market cap of $126.8 billion, TotalEnergies SE stock shows every sign of being modestly overvalued. GF Value for TotalEnergies SE is shown in the chart below.
Because TotalEnergies SE is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. TotalEnergies SE has a cash-to-debt ratio of 0.48, which which ranks in the middle range of the companies in Oil & Gas industry. The overall financial strength of TotalEnergies SE is 4 out of 10, which indicates that the financial strength of TotalEnergies SE is poor. This is the debt and cash of TotalEnergies SE over the past years:
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. TotalEnergies SE has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $119.8 billion and loss of $1.69 a share. Its operating margin is -1.45%, which ranks in the middle range of the companies in Oil & Gas industry. Overall, the profitability of TotalEnergies SE is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of TotalEnergies SE over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of TotalEnergies SE is -9.2%, which ranks in the middle range of the companies in Oil & Gas industry. The 3-year average EBITDA growth is -16.7%, which ranks worse than 70% of the companies in Oil & Gas industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, TotalEnergies SE's return on invested capital is -1.50, and its cost of capital is 5.36. The historical ROIC vs WACC comparison of TotalEnergies SE is shown below:
To conclude, The stock of TotalEnergies SE (NYSE:TOT, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 70% of the companies in Oil & Gas industry. To learn more about TotalEnergies SE stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
