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PrimeEnergy Resources Stock Shows Every Sign Of Being Modestly Undervalued

- By GF Value

The stock of PrimeEnergy Resources (NAS:PNRG, 30-year Financials) is estimated to be modestly undervalued, 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 $40.16 per share and the market cap of $80.1 million, PrimeEnergy Resources stock is estimated to be modestly undervalued. GF Value for PrimeEnergy Resources is shown in the chart below.


PrimeEnergy Resources Stock Shows Every Sign Of Being Modestly Undervalued
PrimeEnergy Resources Stock Shows Every Sign Of Being Modestly Undervalued

Because PrimeEnergy Resources is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.

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

It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. PrimeEnergy Resources has a cash-to-debt ratio of 0.03, which is worse than 88% of the companies in Oil & Gas industry. The overall financial strength of PrimeEnergy Resources is 3 out of 10, which indicates that the financial strength of PrimeEnergy Resources is poor. This is the debt and cash of PrimeEnergy Resources over the past years:

PrimeEnergy Resources Stock Shows Every Sign Of Being Modestly Undervalued
PrimeEnergy Resources Stock Shows Every Sign Of Being Modestly Undervalued

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. PrimeEnergy Resources has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $58.4 million and loss of $2.064 a share. Its operating margin is -28.78%, which ranks worse than 78% of the companies in Oil & Gas industry. Overall, the profitability of PrimeEnergy Resources is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of PrimeEnergy Resources over the past years:

PrimeEnergy Resources Stock Shows Every Sign Of Being Modestly Undervalued
PrimeEnergy Resources Stock Shows Every Sign Of Being Modestly Undervalued

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. PrimeEnergy Resources's 3-year average revenue growth rate is in the middle range of the companies in Oil & Gas industry. PrimeEnergy Resources's 3-year average EBITDA growth rate is -19.7%, which ranks worse than 72% of the companies in Oil & Gas 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, PrimeEnergy Resources's ROIC was -5.80, while its WACC came in at 6.68. The historical ROIC vs WACC comparison of PrimeEnergy Resources is shown below:

PrimeEnergy Resources Stock Shows Every Sign Of Being Modestly Undervalued
PrimeEnergy Resources Stock Shows Every Sign Of Being Modestly Undervalued

In closing, PrimeEnergy Resources (NAS:PNRG, 30-year Financials) stock is believed to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 72% of the companies in Oil & Gas industry. To learn more about PrimeEnergy Resources stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.