Stock of the Week: This Energy Player Is Heating Up
Alpesh Patel|November 18, 2023
It’s getting cold outside…
Which means companies that provide warmth in the winter months are heating up.
Like this week’s Stock of the Week.
It’s a propane and natural gas distributor that serves 700 regions in 41 states across the U.S.
But you know that I’m most interested in the financials…
And for this company, they’re quite strong.
It has an impressive CROCI score (that’s cash return on capital invested, my favorite metric)… and the stock has a dirt-cheap forecast P/E, which tells me it’s hugely undervalued.
We’d be looking at an easy 32% gain if the stock were to return to its most recent highs.
Get the details on the stock – including the ticker – in my latest video.
Click on the image below to watch it.
Hello, Manward family, and welcome to another fascinating, exciting, enthralling Stock of the Week. (I’ve got to live up to that introduction, don’t I?)
This week’s Stock of the Week is Suburban Propane Partners (SPH).
Now, I’m Alpesh Patel, founder of GVI Investor and of a hedge fund and a venture capital firm, which means I get a lot of information crossing my desk. My team’s goal each week is to catch my eye, to find me some stocks worth talking about − worth discussing with you good people.
So Suburban Propane Partners caught my eye this week.
This is a New Jersey-headquartered company. It’s a nationwide marketer and distributor of a diverse range of energy-related products, so very much, obviously, in the energy space, propane fuel oil, refined fuels… as well as marketing natural gas and electricity in deregulated markets.
It’s got 3,300 full-time employees, it has business operations in 41 states, and it has 1 million residential, industrial and agricultural customers in about 700 locations. So you can see some degree of diversification across the nation.
(I didn’t mean for that to rhyme, but it just worked out well.)
Suburban Propane Partners is forecast to grow revenue and profits. So we need to look at some of those numbers and why the company caught my eye… and it really is the numbers. I follow the numbers wherever they lead, whichever sector they lead into.
On my Growth-Value-Income rating − my proprietary algorithm that weighs the valuation of a stock, the growth of a stock, the income of a stock − this one has an 8 out of 10.
Anything with a 7, 8, 9 or 10, of course, meets my minimum requirement. And this one does that. The forecast P/E ratio is at a multiple of 7.9. (That’s current share price compared to forecasted profit.) So it’s not particularly expensive.
Cash return on capital invested (CROCI) is 9.7%. Now, you’ll know why that number’s important by clicking here… I explain why Goldman Sachs Wealth Management uses that formula for its clients to pick stocks. And I’m sharing that with you.
The Sortino is 0.27. Now, that’s okay. It’s basically a measure of the average return versus the risk of missing it. I’d want it to be above 0.3, but 0.27’s okay.
It has low volatility, and based on its return alpha, it’s outperforming the broader market.
So all good there.
How does the price chart look? Well, I’ve done a projection − roughly − of the kinds of returns one could expect were the stock to hit the highs it had four years ago.
It’s been trading sideways for four years since COVID and recently seems to have broken upward and outward.
So if that continues, especially on a discount cash flow basis, it’s about 75% undervalued. Not a guarantee it’ll go up, but an interesting metric.
So as you can see from this Stock of the Week, I try to tick a lot of boxes… valuation, multiple measures of that, growth, multiple indications of revenue, earnings, cash flow. And it’s very rare to find a company that ticks all those boxes.
But this one gets quite there. So I thought it was an interesting one to both educate you with and inform you. Of course, in GVI Investor, we go into a lot of depth into these companies and we have far higher, more stringent criteria on there for our selections.
But this gives you a “tip of the iceberg” insight into how we do things around here.
Thank you very much.