Hallador Energy Co Stock Is Estimated To Be Possible Value Trap
- By GF Value
The stock of Hallador Energy Co (NAS:HNRG, 30-year Financials) gives every indication of being 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 $1.87 per share and the market cap of $57.2 million, Hallador Energy Co stock is estimated to be possible value trap. GF Value for Hallador Energy Co is shown in the chart below.
The reason we think that Hallador Energy Co stock might be a value trap is because Hallador Energy Co has an Altman Z-score of 1.10, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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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. Hallador Energy Co has a cash-to-debt ratio of 0.06, which which ranks in the bottom 10% of the companies in the industry of Other Energy Sources. The overall financial strength of Hallador Energy Co is 4 out of 10, which indicates that the financial strength of Hallador Energy Co is poor. This is the debt and cash of Hallador Energy Co over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Hallador Energy Co has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $242.1 million and loss of $0.2 a share. Its operating margin is 1.05%, which ranks in the middle range of the companies in the industry of Other Energy Sources. Overall, the profitability of Hallador Energy Co is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Hallador Energy 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. Hallador Energy Co's 3-year average revenue growth rate is worse than 70% of the companies in the industry of Other Energy Sources. Hallador Energy Co's 3-year average EBITDA growth rate is -13%, which ranks worse than 78% of the companies in the industry of Other Energy Sources.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Hallador Energy Co's ROIC is 0.47 while its WACC came in at 6.34. The historical ROIC vs WACC comparison of Hallador Energy Co is shown below:
Overall, the stock of Hallador Energy Co (NAS:HNRG, 30-year Financials) appears to be possible value trap. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 78% of the companies in the industry of Other Energy Sources. To learn more about Hallador Energy Co stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.