NGL Energy Partners (NGL): Assessing Valuation Following Strong Profit Rebound Despite Lower Revenue

NGL Energy Partners just released its latest earnings, and the numbers are turning heads. Despite reporting lower revenue compared to last year, the company delivered a significant jump in net income for the quarter and half-year.

See our latest analysis for NGL Energy Partners.

After a stretch of muted trading, NGL Energy Partners has caught investors’ attention in a big way. The past week alone saw a 47% share price return, with momentum building all year. The one-year total shareholder return is an impressive 127%, reflecting sharp improvements in profitability and a shift in market sentiment.

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With such dramatic gains on the board and real improvements in the bottom line, the question now is whether NGL Energy Partners’ stock still trades below its value or if the market is already anticipating even more growth ahead.

Price-to-Earnings of 29x: Is it justified?

NGL Energy Partners currently trades with a price-to-earnings ratio (P/E) of 29, putting it well above both the US Oil and Gas industry average of 13.4 and the peer average of 15.8. At a closing share price of $9.52, the stock is valued at a significant premium compared to its sector.

The price-to-earnings ratio tells investors how much shareholders are paying for each dollar of earnings. In this sector, the P/E ratio often reflects expectations for future profitability and growth. A high multiple suggests the market anticipates robust future earnings or rewards a turnaround story. However, it can also signal over-optimism if earnings growth does not materialize.

In NGL's case, the steep P/E multiple seems to reflect the company's recent shift to sustained profitability after years of mixed results. The current premium appears expensive not just against the broader industry, but also in comparison to what our fair ratio analysis projects. For context, the market's fair price-to-earnings ratio for NGL sits at 24.7, indicating that even strong future financial performance may not fully justify today’s price level if sector trends remain unchanged.

Explore the SWS fair ratio for NGL Energy Partners

Result: Price-to-Earnings of 29x (OVERVALUED)

However, weakening revenue trends or a reversal in recent profitability could quickly challenge the bullish case for NGL Energy Partners in the future.

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

Another View: What Does the DCF Model Say?

Looking from a different angle, our SWS DCF model suggests NGL Energy Partners could actually be trading far above its fair value. While current profits have improved, the DCF method estimates a fair value of just $2.71 per share. This makes the recent price seem optimistic based on future cash flows.

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 870 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 NGL Energy Partners Narrative

If you see the numbers differently or want to reach your own conclusion, it’s easy to dive in and build your own perspective in just a few minutes. Do it your way

A great starting point for your NGL Energy Partners research is our analysis highlighting 2 key rewards 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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