The stock of Black Stone Minerals LP (NYSE:BSM, 30-year Financials) is estimated 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 $10.64 per share and the market cap of $2.2 billion, Black Stone Minerals LP stock shows every sign of being significantly overvalued. GF Value for Black Stone Minerals LP is shown in the chart below.
Because Black Stone Minerals LP is significantly overvalued, the long-term return of its stock is likely to be much lower than its future 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. Black Stone Minerals LP has a cash-to-debt ratio of 0.03, which is in the bottom 10% of the companies in Oil & Gas industry. The overall financial strength of Black Stone Minerals LP is 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:
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. Black Stone Minerals LP has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $221.3 million and earnings of $0.19 a share. Its operating margin is 20.23%, which ranks better than 83% of the companies in Oil & Gas industry. Overall, GuruFocus ranks the profitability of Black Stone Minerals LP at 6 out of 10, which indicates fair profitability. 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 in the middle range 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.
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, Black Stone Minerals LP's ROIC is 3.38 while its WACC came in at 10.83. The historical ROIC vs WACC comparison of Black Stone Minerals LP is shown below:
To conclude, the stock of Black Stone Minerals LP (NYSE:BSM, 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 Black Stone Minerals LP stock, you can check out its 30-year Financials here.
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