BP Midstream Partners LP Stock Gives Every Indication Of Being Modestly Undervalued

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Apr 02, 2021
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The stock of BP Midstream Partners LP (NYSE:BPMP, 30-year Financials) gives every indication of being modestly undervalued, 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 $12.7 per share and the market cap of $1.3 billion, BP Midstream Partners LP stock gives every indication of being modestly undervalued. GF Value for BP Midstream Partners LP is shown in the chart below.

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Because BP Midstream Partners LP is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 6% over the past five years.

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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. BP Midstream Partners LP has a cash-to-debt ratio of 0.27, which is in the middle range of the companies in Oil & Gas industry. The overall financial strength of BP Midstream Partners LP is 4 out of 10, which indicates that the financial strength of BP Midstream Partners LP is poor. This is the debt and cash of BP Midstream Partners LP over the past years:

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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. BP Midstream Partners LP has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $128.9 million and earnings of $1.56 a share. Its operating margin is 66.25%, which ranks better than 97% of the companies in Oil & Gas industry. Overall, GuruFocus ranks the profitability of BP Midstream Partners LP at 7 out of 10, which indicates fair profitability. This is the revenue and net income of BP Midstream Partners LP over the past years:

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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. BP Midstream Partners LP's 3-year average revenue growth rate is better than 66% of the companies in Oil & Gas industry. BP Midstream Partners LP's 3-year average EBITDA growth rate is 27%, which ranks better than 77% of the companies in Oil & Gas industry.

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, BP Midstream Partners LP's ROIC was 14.07, while its WACC came in at 7.28. The historical ROIC vs WACC comparison of BP Midstream Partners LP is shown below:

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Overall, The stock of BP Midstream Partners LP (NYSE:BPMP, 30-year Financials) appears to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 77% of the companies in Oil & Gas industry. To learn more about BP Midstream Partners LP stock, you can check out its 30-year Financials here.

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