Yahoo Finance Kinder Morgan Stock Shows Every Sign Of Being Fairly Valued
- By GF Value
The stock of Kinder Morgan (NYSE:KMI, 30-year Financials) appears to be fairly valued, 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 $17.84 per share and the market cap of $40.4 billion, Kinder Morgan stock gives every indication of being fairly valued. GF Value for Kinder Morgan is shown in the chart below.
Because Kinder Morgan is fairly valued, the long-term return of its stock is likely to be close to the rate of 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. Kinder Morgan has a cash-to-debt ratio of 0.04, which which ranks better than 100% of the companies in Market Overview industry. The overall financial strength of Kinder Morgan is 4 out of 10, which indicates that the financial strength of Kinder Morgan is poor. This is the debt and cash of Kinder Morgan 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. Kinder Morgan has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $13.8 billion and earnings of $0.81 a share. Its operating margin of 31.59% better than 100% of the companies in Market Overview industry. Overall, GuruFocus ranks Kinder Morgan's profitability as fair. This is the revenue and net income of Kinder Morgan 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 Kinder Morgan is -5.6%, which ranks better than 100% of the companies in Market Overview industry. The 3-year average EBITDA growth rate is -3.8%, which ranks better than 100% of the companies in Market Overview 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, Kinder Morgan's return on invested capital is 4.27, and its cost of capital is 5.60. The historical ROIC vs WACC comparison of Kinder Morgan is shown below:
In short, Kinder Morgan (NYSE:KMI, 30-year Financials) stock is believed to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 100% of the companies in Market Overview industry. To learn more about Kinder Morgan stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
