Has the Market Rallied Too Far on International Seaways After Its Multi Year Surge?

• If you are wondering whether International Seaways is still a smart buy after its huge run up, or if most of the upside has already been priced in, you are not alone.
• The stock has pulled back about 3.5% over the last week, but it is still up 2.0% over 30 days, 41.0% year to date, and 50.6% over the last year, in addition to an 84.6% gain over 3 years and a 326.6% gain over 5 years.
• Those moves have come alongside strong sentiment around tanker demand and trade route shifts, as shipping capacity and day rates remain a major talking point across the industry. Investors have also been reacting to ongoing geopolitical tensions and evolving sanctions regimes, which can tighten supply and boost rates for companies such as International Seaways.
• On our checks, International Seaways scores a 4 out of 6 on valuation, as seen in its valuation score. Next, we will walk through what different valuation approaches indicate about the stock, then finish with a more holistic way to think about its overall worth.

International Seaways delivered 50.6% returns over the last year. See how this stacks up to the rest of the Oil and Gas industry.

Approach 1: International Seaways Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business is worth today by projecting its future cash flows and discounting them back to a present value using a required rate of return.

For International Seaways, the latest twelve month Free Cash Flow stands at about $143 million. Based on current assumptions, cash flows are projected to be around $277 million by 2026, with further annual estimates gradually tapering but remaining in a similar range over the next decade. Early years are informed by analyst forecasts, while later years are extrapolated from those trends.

Aggregating and discounting these projected cash flows under a two stage Free Cash Flow to Equity model results in an estimated intrinsic value of roughly $120.19 per share. Compared with the current share price, this implies the stock is about 57.5% undervalued on a DCF basis, which indicates a potential margin of safety if these cash flow assumptions prove broadly accurate.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests International Seaways is undervalued by 57.5%. Track this in your watchlist or portfolio, or discover 906 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for International Seaways.

Approach 2: International Seaways Price vs Earnings

For profitable companies like International Seaways, the Price to Earnings (PE) ratio is a useful way to gauge how much investors are paying for each dollar of current earnings. In general, faster growing and less risky businesses can justify a higher PE, while slower growth or higher uncertainty usually calls for a lower, more conservative multiple.

International Seaways currently trades on a PE of about 11.6x. That is modestly above its direct peer average of around 10.1x, but below the broader Oil and Gas industry average of roughly 13.8x. This suggests the stock is not obviously stretched relative to the space it operates in. To dig deeper, Simply Wall St also calculates a proprietary Fair Ratio, which estimates what PE you would expect given the company’s earnings growth outlook, profitability, industry, size and risk profile.

This Fair Ratio for International Seaways is approximately 16.2x, comfortably above the current 11.6x market multiple. Because the Fair Ratio incorporates company specific drivers rather than just simple peer or industry comparisons, it provides a more tailored view of value. On that basis the shares appear to be trading at a meaningful discount to what might be considered a fair PE.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1442 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your International Seaways Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, an easy tool on Simply Wall St’s Community page that lets you link a company’s story to a set of forecasts and a fair value estimate. You do this by writing down your view of its future revenue, earnings and margins, then comparing that Fair Value to today’s Price to decide whether to buy, hold or sell. The system automatically updates your Narrative as new news or earnings arrive. For International Seaways, one investor might build a bullish Narrative around extended trade routes, tight vessel supply and higher 2028 earnings near the top analyst estimate of about $419 million. Another might create a more cautious Narrative based on decarbonization and regulatory risks, using earnings closer to the low end of roughly $177 million. Even though both start from the same data, their different stories produce very different fair values and, therefore, very different investment decisions.

Do you think there's more to the story for International Seaways? Head over to our Community to see what others are saying!

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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