On October 4, 2023, Nabors Industries Ltd (NBR, Financial) recorded a day's loss of 6.39%, a 3-month gain of 15.68%, and a Loss Per Share of 5.87. The question arises: is the stock modestly undervalued? This comprehensive guide seeks to answer this question by analyzing the company's valuation, financial strength, profitability, and growth. Let's delve into the details.
A Snapshot of Nabors Industries Ltd (NBR, Financial)
Nabors Industries Ltd operates one of the world's largest land-based drilling rig fleets and is a provider of offshore platform rigs in the U.S. and international markets. With operations in over 15 countries, the company offers performance tools, directional drilling services, tubular running services, and innovative technologies. Nabors Industries' key revenue is generated from International Drilling, one of its five reportable segments.
With a market cap of $1 billion, the company's stock price stands at $109.17, while its fair value (GF Value) is $125.38. This disparity suggests that the stock might be modestly undervalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given its current price of $109.17 per share, Nabors Industries (NBR, Financial) is considered to be modestly undervalued. This undervaluation suggests that the long-term return of its stock is likely to be higher than its business growth.
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Assessing Nabors Industries' Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Nabors Industries has a cash-to-debt ratio of 0.17, which ranks worse than 72.32% of 1026 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Nabors Industries' financial strength as 4 out of 10, indicating a poor balance sheet.
Analyzing Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Nabors Industries has been profitable 1 over the past 10 years. Over the past twelve months, the company had a revenue of $3 billion and a Loss Per Share of $5.87. Its operating margin is 7.81%, which ranks worse than 51.89% of 979 companies in the Oil & Gas industry. Overall, GuruFocus ranks the profitability of Nabors Industries at 3 out of 10, which indicates poor profitability.
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 Nabors Industries is -11.7%, which ranks worse than 84.53% of 860 companies in the Oil & Gas industry. The 3-year average EBITDA growth is -1.3%, which ranks worse than 70.82% of 826 companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. During the past 12 months, Nabors Industries' ROIC was 0.87, while its WACC came in at 9.24.
Conclusion
In conclusion, the stock of Nabors Industries (NBR, Financial) is believed to be modestly undervalued. The company's financial condition is poor, and its profitability is poor. Its growth ranks worse than 70.82% of 826 companies in the Oil & Gas industry. To learn more about Nabors Industries stock, you can check out its 30-Year Financials here.
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