Yahoo Finance Golden Ocean Group Stock Is Estimated To Be Modestly Overvalued
- By GF Value
The stock of Golden Ocean Group (NAS:GOGL, 30-year Financials) shows every sign 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 $7.35 per share and the market cap of $1.5 billion, Golden Ocean Group stock gives every indication of being modestly overvalued. GF Value for Golden Ocean Group is shown in the chart below.
Because Golden Ocean Group is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 6.5% over the past three years and is estimated to grow 1.01% annually over the next three to five years.
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. Golden Ocean Group has a cash-to-debt ratio of 0.13, which ranks worse than 74% of the companies in Transportation industry. Based on this, GuruFocus ranks Golden Ocean Group's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Golden Ocean Group over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Golden Ocean Group has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $607.9 million and loss of $0.96 a share. Its operating margin is 4.56%, which ranks in the middle range of the companies in Transportation industry. Overall, GuruFocus ranks the profitability of Golden Ocean Group at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Golden Ocean Group 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 Golden Ocean Group is 6.5%, which ranks better than 66% of the companies in Transportation industry. The 3-year average EBITDA growth rate is -49.8%, which ranks in the bottom 10% of the companies in Transportation industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Golden Ocean Group's ROIC was 0.98, while its WACC came in at 6.88. The historical ROIC vs WACC comparison of Golden Ocean Group is shown below:
To conclude, Golden Ocean Group (NAS:GOGL, 30-year Financials) stock shows every sign of being modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Transportation industry. To learn more about Golden Ocean Group 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.
