TechnipFMC PLC (FTI, Financial), a leading player in the oil and gas industry, has been making waves in the market. Despite a daily loss of 2.58%, the stock has seen a 3-month gain of 32.06%. However, with a Loss Per Share of $0.27, the question arises: Is the stock significantly overvalued? This article aims to answer this question by delving into a detailed valuation analysis. We invite our readers to join us on this insightful journey.
Company Overview
TechnipFMC PLC, born out of the 2017 merger of Technip and FMC Technologies, is a leading offshore service provider. The company offers integrated deep-water offshore oil and gas development solutions, covering the full spectrum of subsea equipment and subsea engineering and construction services. It also provides various surface equipment used with onshore oil and gas wells.
With a current stock price of $20.4 and a market cap of $8.90 billion, TechnipFMC PLC's valuation needs a closer inspection. This is where the GF Value comes into play. Estimated at $10.08, the GF Value is a measure of the stock's fair value and serves as a benchmark for comparison with the stock price.
GF Value: A Closer Look
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
TechnipFMC PLC, with its current price of $20.4 per share, appears to be significantly overvalued according to our valuation method. The GF Value estimates suggest that the stock's fair value is much lower, indicating that its future returns may be poor. If the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. However, that is not the case with TechnipFMC PLC.
Because TechnipFMC PLC 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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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss. A great way to understand the financial strength of a company is by looking at the cash-to-debt ratio and interest coverage. TechnipFMC PLC has a cash-to-debt ratio of 0.29, which is worse than 62.09% of 1034 companies in the Oil & Gas industry. The overall financial strength of TechnipFMC PLC is 5 out of 10, which indicates that the financial strength of TechnipFMC PLC is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. TechnipFMC PLC has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $7.10 billion and a Loss Per Share of $0.27. Its operating margin is 4.67%, which ranks worse than 59.86% of 984 companies in the Oil & Gas industry. Overall, the profitability of TechnipFMC PLC is ranked 5 out of 10, indicating fair profitability.
Growth is probably the most important factor in the valuation of a company. 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 TechnipFMC PLC is -1.3%, which ranks worse than 72.62% of 862 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 830 companies in the Oil & Gas industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, TechnipFMC PLC's ROIC was -12.14, while its WACC came in at 10.24.
Conclusion
In conclusion, the stock of TechnipFMC PLC (FTI, Financial) appears to be significantly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 0% of 830 companies in the Oil & Gas industry. For more details about TechnipFMC PLC stock, you can check out its 30-Year Financials here.
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