Is NGL Energy Partners (NGL) Fully Valued As Revenue Falls And Losses Persist?

NGL Energy Partners stock reaction and recent performance

NGL Energy Partners (NGL) has drawn investor attention after recent market trading, with the stock closing at US$15.56 and showing mixed near term moves, including a decline over the past month but gains over the past 3 months.

See our latest analysis for NGL Energy Partners.

Viewed over a longer stretch, NGL Energy Partners has combined a strong year to date share price return of 57.17% with a very large 1 year total shareholder return, even after a 3.23% pullback in the latest session. This suggests recent momentum has cooled slightly but broader sentiment remains supportive.

If NGL Energy Partners has you rethinking your watchlist, it could be a good moment to widen your search with our screener for 35 power grid technology and infrastructure stocks

After such a strong year-to-date rebound, yet with revenue contracting and the partnership still reporting a loss, does the current NGL Energy Partners price still offer an appealing risk-reward profile, or has most of the upside already been claimed?

Preferred Price-to-Sales multiple of 0.6x: Is it justified?

On a simple revenue basis, NGL Energy Partners trades at a P/S ratio of 0.6x, which points to a lower valuation relative to many peers even after the strong share price move.

The P/S ratio compares the stock price to revenue per unit of ownership and is often used for companies that are not yet profitable. For NGL Energy Partners, earnings are still in a loss position, with net income at a loss of $444.9m on revenue of $3.16b, so investors are effectively paying for the revenue stream and any potential for profitability rather than current profits.

Against both the wider US Oil and Gas industry and a closer peer group, NGL Energy Partners screens cheaply on this measure. Its 0.6x P/S ratio is well below the US Oil and Gas industry average of 2.1x and also well below the peer average of 3.2x. This indicates the market is assigning a much lower revenue multiple to NGL Energy Partners than to comparable companies. However, when compared to the estimated fair P/S ratio of 0.4x, the current 0.6x suggests the market is pricing the stock above that fair multiple level that our model indicates it could move toward over time.

Explore the SWS fair ratio for NGL Energy Partners

Result: Price-to-Sales of 0.6x (OVERVALUED)

However, NGL Energy Partners still carries clear risks, including revenue that fell 33.5% and a net loss of US$444.9m, which could challenge any bullish share price narrative.

Find out about the key risks to this NGL Energy Partners narrative.

Another view on NGL Energy Partners using our DCF model

There is a twist when NGL Energy Partners is viewed through our DCF model. At $15.56, the unit price sits above the estimated future cash flow value of $12.58, which points to the stock looking overvalued on this cash flow based lens.

That is a different message to the low 0.6x P/S ratio and raises a practical question for investors: is the market giving too much credit to the earnings recovery story, or is the DCF model being too conservative on future cash generation? Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out NGL Energy Partners for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 48 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Given the mixed signals around NGL Energy Partners, it helps to see the full picture for yourself rather than rely on one metric or model. To weigh both the concerns and potential upside in context, take a closer look at the balance of 1 key reward and 1 important warning sign

Looking for more investment ideas beyond NGL Energy Partners?

If NGL Energy Partners has sharpened your focus on valuation and risk, you can use that momentum to uncover other stocks that could fit your watchlist before they move.

• Target potential mispricing by scanning companies that combine quality and attractive valuations with the 48 high quality undervalued stocks.
• Prioritize resilience by focusing on businesses screened for lower risk profiles through the 79 resilient stocks with low risk scores.
• Identify lesser known companies with strong fundamentals using the screener containing 19 high quality undiscovered gems.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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