Genesis Energy (GEL): Assessing Current Valuation After Offshore Pipeline Turnaround and Margin Improvement

Genesis Energy (NYSE:GEL) delivered a meaningful turnaround in its recent quarterly results, supported by margin improvement and higher volumes in its offshore pipeline transportation segment. New deepwater projects and resolved operational issues contributed to this improvement.

See our latest analysis for Genesis Energy.

After a period of mixed returns, Genesis Energy’s latest momentum is hard to overlook, with a 1-year total shareholder return of 58.8% and shares up 55.1% year to date. The recent earnings-driven boost signals improving sentiment as free cash flow and balance sheet strength underpin optimism going forward.

If you’re looking to broaden your search beyond the latest turnaround, now is a great time to discover fast growing stocks with high insider ownership.

With the stock already up sharply this year and expectations of ongoing margin gains, the key question is whether Genesis Energy’s recent rally leaves more room for upside, or if the market is now fully accounting for future growth potential.

Price-to-Sales Ratio of 0.7x: Is it justified?

Genesis Energy currently trades at a price-to-sales (P/S) ratio of 0.7x, signaling that the market prices each dollar of the company’s sales below both its direct peers and the wider oil and gas sector. Compared to the industry average of 1.5x and a peer average of 2.2x, this is a distinct discount.

The price-to-sales ratio reflects how much investors are willing to pay for each dollar of revenue. It is relevant for companies with volatile profits or those that are unprofitable, like Genesis Energy, because it focuses on the top line rather than bottom-line earnings.

Given that Genesis Energy is currently unprofitable and experiencing revenue declines, the market’s reluctance to bid up the multiple is understandable. However, the discount to both the industry and peer averages is striking. According to regression analysis, the estimated fair P/S ratio for Genesis Energy is 0.2x, so even the current valuation could be on the higher side if fundamentals deteriorate further.

Explore the SWS fair ratio for Genesis Energy

Result: Price-to-Sales of 0.7x (OVERVALUED)

However, with declining annual revenue and ongoing unprofitability, any further operational setbacks could quickly undermine Genesis Energy’s current market momentum.

Find out about the key risks to this Genesis Energy narrative.

Another View: SWS DCF Model Suggests Undervaluation

While the price-to-sales ratio signals Genesis Energy could be expensive relative to its fundamentals, our SWS DCF model presents a very different picture. It suggests the company is trading at a substantial 61.3% discount to its fair value. Could the market be underestimating future upside?

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 Genesis Energy 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 844 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Genesis Energy Narrative

If you have a different perspective or want to dive deeper into the numbers, you can shape your own story about Genesis Energy in just minutes. Do it your way.

A great starting point for your Genesis Energy research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

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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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