The stock of Black Stone Minerals LP (NYSE:BSM, 30-year Financials) appears to be fairly valued, 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 $9.08 per share and the market cap of $1.9 billion, Black Stone Minerals LP stock is estimated to be fairly valued. GF Value for Black Stone Minerals LP is shown in the chart below.
Because Black Stone Minerals LP is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Black Stone Minerals LP has a cash-to-debt ratio of 0.02, which is in the bottom 10% of the companies in Oil & Gas industry. GuruFocus ranks the overall financial strength of Black Stone Minerals LP at 6 out of 10, which indicates that the financial strength of Black Stone Minerals LP is fair. This is the debt and cash of Black Stone Minerals LP over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Black Stone Minerals LP has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $342.8 million and earnings of $0.48 a share. Its operating margin of 46.42% better than 94% of the companies in Oil & Gas industry. Overall, GuruFocus ranks Black Stone Minerals LP's profitability as fair. This is the revenue and net income of Black Stone Minerals LP over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Black Stone Minerals LP is -9.4%, which ranks worse than 66% of the companies in Oil & Gas industry. The 3-year average EBITDA growth is -11.5%, which ranks in the middle range of the companies in Oil & Gas 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, Black Stone Minerals LP's return on invested capital is 11.49, and its cost of capital is 10.55. The historical ROIC vs WACC comparison of Black Stone Minerals LP is shown below:
In short, Black Stone Minerals LP (NYSE:BSM, 30-year Financials) stock appears to be fairly valued. 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 Black Stone Minerals LP stock, you can check out its 30-year Financials here.
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