That combination of strong long term returns and recent share price weakness often raises a simple question for investors: is Teekay Tankers still offering value at today's price?
Before looking at detailed valuation models, it helps to recap what has been happening with the share price and the business itself.
Over the last year, the stock has returned 77.0%, while year to date it is up 28.5%. In the last 7 days and 30 days, however, the share price has slipped 11.0% and 6.2% respectively, which can change how the market is thinking about both risk and opportunity.
These mixed moves mean that any valuation work needs to be grounded in the current price of US$66.20, as well as the backdrop for the company, rather than just relying on past performance.
Approach 1: Teekay Tankers Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow model takes estimates of future cash flows, then discounts them back to today to arrive at an implied value per share. It is essentially asking what all those future dollars are worth in today's terms.
For Teekay Tankers, the latest twelve month Free Cash Flow is about US$233.3 million. Analysts and model estimates project Free Cash Flow rising to US$500.6 million in 2035, based on a mix of explicit analyst forecasts through 2028 and extrapolated figures beyond that. All cash flows are assessed in US$, even if accounting or trading currencies differ.
On this basis, the 2 Stage Free Cash Flow to Equity model points to an estimated intrinsic value of roughly US$296.49 per share. Compared with the current share price of US$66.20, this implies a discount of about 77.7%. Under this approach, the shares are screening as markedly undervalued.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Teekay Tankers is undervalued by 77.7%. Track this in your watchlist or portfolio, or discover 47 more high quality undervalued stocks.
Approach 2: Teekay Tankers Price vs Earnings
For profitable companies, the P/E ratio is a useful shorthand because it links what you pay for the stock directly to the earnings the business is currently generating. It gives you a quick sense of how many dollars investors are paying for each dollar of profit.
What counts as a "normal" or "fair" P/E depends on how the market views a company’s growth potential and risk. Higher expected growth or lower perceived risk can support a higher P/E, while slower growth or higher risk usually lines up with a lower P/E.
Teekay Tankers currently trades on a P/E of 6.53x. This is below the Oil and Gas industry average P/E of 15.52x and also below the peer group average of 12.43x. Simply Wall St’s Fair Ratio for Teekay Tankers is 14.38x. This Fair Ratio is a proprietary view of what the P/E might be given factors such as earnings growth, profit margins, market cap, risk profile and the industry context.
Because the Fair Ratio incorporates these company specific factors, it can be more informative than a simple comparison with peers or the broad industry. With a Fair Ratio of 14.38x versus the current 6.53x, Teekay Tankers appears to be trading below this assessment of fair value on a P/E basis.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Teekay Tankers Narrative
Earlier it was mentioned that there is an even better way to understand valuation. This is where Narratives come in, giving you a simple story that links your view of Teekay Tankers to specific forecasts for revenue, earnings and margins, and then to a Fair Value that you can compare with the current price.
On Simply Wall St’s Community page, a Narrative is your own Teekay Tankers storyline written in numbers. You set assumptions such as the revenue path, profit margins and future P/E, and the platform converts that into a Fair Value that automatically updates when new earnings, news or analyst targets are added.
For Teekay Tankers, one investor might build a cautious Narrative around a Fair Value of US$41.00 that reflects expectations for revenue of US$585.7 million, earnings of US$328.9 million and a future P/E of 5.1x. Another might choose a more optimistic Narrative with a Fair Value of US$84.00 that lines up with revenue of US$587.5 million, earnings of US$336.6 million and a future P/E of 11.47x. This shows how the same company can look very different once your assumptions change.
Do you think there's more to the story for Teekay Tankers? 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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