Pioneer Natural Resources Co Stock Gives Every Indication Of Being Significantly Overvalued
- By GF Value
The stock of Pioneer Natural Resources Co (NYSE:PXD, 30-year Financials) is believed to be significantly 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 $167.83 per share and the market cap of $36.4 billion, Pioneer Natural Resources Co stock gives every indication of being significantly overvalued. GF Value for Pioneer Natural Resources Co is shown in the chart below.
Because Pioneer Natural Resources Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 11% over the past three years and is estimated to grow 7.40% annually over the next three to five years.
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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. Pioneer Natural Resources Co has a cash-to-debt ratio of 0.13, which ranks in the middle range of the companies in Oil & Gas industry. Based on this, GuruFocus ranks Pioneer Natural Resources Co's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Pioneer Natural Resources Co 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. Pioneer Natural Resources Co has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $8.1 billion and loss of $2.85 a share. Its operating margin is 13.75%, which ranks better than 69% of the companies in Oil & Gas industry. Overall, GuruFocus ranks the profitability of Pioneer Natural Resources Co at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Pioneer Natural Resources Co 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 Pioneer Natural Resources Co is 11%, which ranks better than 77% of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is -5.7%, which ranks in the middle range of the companies in Oil & Gas industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Pioneer Natural Resources Co's return on invested capital is 4.42, and its cost of capital is 12.79. The historical ROIC vs WACC comparison of Pioneer Natural Resources Co is shown below:
To conclude, the stock of Pioneer Natural Resources Co (NYSE:PXD, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about Pioneer Natural Resources Co stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.