Steamships Trading Co Stock Appears To Be Modestly Undervalued
- By GF Value
The stock of Steamships Trading Co (ASX:SST, 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 AUD 9.45 per share and the market cap of AUD 293 million, Steamships Trading Co stock appears to be modestly undervalued. GF Value for Steamships Trading Co is shown in the chart below.
Because Steamships Trading Co is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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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. Steamships Trading Co has a cash-to-debt ratio of 0.39, which is in the middle range of the companies in Transportation industry. The overall financial strength of Steamships Trading Co is 6 out of 10, which indicates that the financial strength of Steamships Trading Co is fair. This is the debt and cash of Steamships Trading Co 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. Steamships Trading Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of AUD 200 million and earnings of AUD 0.94 a share. Its operating margin is 12.04%, which ranks better than 75% of the companies in Transportation industry. Overall, the profitability of Steamships Trading Co is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Steamships Trading Co 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. Steamships Trading Co's 3-year average revenue growth rate is worse than 80% of the companies in Transportation industry. Steamships Trading Co's 3-year average EBITDA growth rate is -8.8%, which ranks worse than 74% of the companies in Transportation 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, Steamships Trading Co's return on invested capital is 5.14, and its cost of capital is 3.90.
In summary, Steamships Trading Co (ASX:SST, 30-year Financials) stock gives every indication of being modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 74% of the companies in Transportation industry. To learn more about Steamships Trading Co stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.