Scorpion tanker (STNG – Free Report) was recently named to Zacks.com’s list of Most Searched Stocks. Therefore, you should consider some of the key factors that could influence the stock’s performance in the near future.
Over the past month, shares of this shipping company have returned +6.2% compared to a +7.5% change in the Zacks S&P 500 Composite. During that period, the Zacks Transportation – Shipping industry, which includes Scorpio Tankers, grew by 6.4%. The crucial question now is: What could the future direction of the stock be?
While news releases or rumors of a material change in a company’s business prospects will usually “trend” the stock and result in an immediate price change, there are always some basic facts that ultimately drive the buy-and-hold decision.
Revisions to earnings estimates
Rather than focusing on anything else, at Zacks we prioritize assessing the change in a company’s earnings outlook. This is because we believe the fair value of its stock is determined by the present value of its future income streams.
Essentially, we look at how sell-side analysts who cover the stock are revising their earnings estimates to reflect the impact of recent business trends. And when earnings estimates for a company go up, the fair value of its stock goes up. A higher fair value than the current market price attracts investors to buy the stock, causing the price to rise. For this reason, empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
For the current quarter, Scorpio Tankers is expected to report earnings per share of $3.85, a change of +587.3% from the same quarter last year. The Zacks consensus estimate is up +44% over the last 30 days.
Consensus earnings estimate of $11.10 for the current fiscal year indicates a change of +366.2% year-on-year. That estimate has changed by +16.7% in the last 30 days.
For the next fiscal year, the consensus earnings estimate of $6.41 shows a change of -42.2% from what Scorpio Tankers is expected to report a year ago. In the last month, the estimate has changed by +6.5%.
Our proprietary stock ranking tool, the Zacks Rank, has a strong, third-party audited track record and provides a more meaningful picture of a stock’s near-term price action by effectively harnessing the power of earnings estimate revisions. The size of the recent consensus estimate change and three other factors related to earnings estimates place Scorpio Tankers at the Zacks Rank #2 (Buy).
The chart below shows the development of the company’s 12-month consensus EPS estimate:
12 Month EPS
Projected sales growth
As such, while earnings growth is arguably the best indicator of a company’s financial health, nothing happens when a company is unable to grow its earnings. After all, it’s nearly impossible for a company to grow its profits over a sustained period of time without increasing sales. Therefore, it is important to know a company’s potential revenue growth.
For Scorpio Tankers, the consensus revenue estimate for the current quarter of $425.61 million shows a year-on-year change of +187.8%. For the current and next fiscal year, estimates of USD 1.44 billion and USD 1.15 billion indicate changes of +167.2% and -19.7%, respectively.
Latest reported results and surprise history
Scorpio Tankers posted revenue of $456.28 million for the most recent reported quarter, representing a +284.7% year-over-year change. EPS of $4.29 for the same period compared to -$1.39 a year ago.
Compared to the Zacks Consensus estimate of $417.9 million, reported earnings represent a surprise of +9.18%. EPS surprise was +12.6%.
The company beat consensus estimates for earnings per share in each of the last four quarters. The company beat consensus sales estimates every time during this period.
No investment decision can be efficient without considering a stock’s valuation. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key factor in future stock price performance.
Comparing the current values of a company’s valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), with its own historical values will help determine if the stock is fair valued, overvalued or undervalued. Comparing the company versus its peers using these parameters gives a good sense of the reasonableness of the stock price.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to rank stocks from A to F (an An is better than a B; a B is better than a C; etc.) is quite helpful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.
Scorpio Tankers is rated A on this front, indicating it is trading at a discount to its peers. Click here to view the values of some of the assessment metrics that led to this grade.
The facts discussed here and plenty of other information on Zacks.com could help determine whether or not the market clamor surrounding Scorpio tankers is worth paying attention to. However, its No. 2 Zacks rank suggests it could outperform the broader market in the near term.