- By GF Value
The stock of California Resources (NYSE:CRC, 30-year Financials) is believed to be 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 $24.25 per share and the market cap of $2 billion, California Resources stock is estimated to be possible value trap. GF Value for California Resources is shown in the chart below.
The reason we think that California Resources stock might be a value trap is because
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. California Resources has a cash-to-debt ratio of 0.04, which ranks worse than 86% of the companies in Oil & Gas industry. Based on this, GuruFocus ranks California Resources's financial strength as 2 out of 10, suggesting poor balance sheet. This is the debt and cash of California Resources 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. California Resources has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $1.6 billion and earnings of $6.652 a share. Its operating margin is -9.56%, which ranks worse than 67% of the companies in Oil & Gas industry. Overall, the profitability of California Resources is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of California Resources over the past years:
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. California Resources's 3-year average revenue growth rate is worse than 71% of the companies in Oil & Gas industry. California Resources's 3-year average EBITDA growth rate is 42.4%, which ranks better than 88% of the companies in Oil & Gas industry.