What NGL Energy Partners' New Buyback Could Mean for Investors

NGL Energy Partners (NGL) has authorized a unit repurchase program of up to US$100 million, with no fixed end date. This gives the partnership flexibility to buy back limited partnership units over time.

The buyback announcement follows a strong run in the units, with a 30 day share price return of 20.89% and a 1 year total shareholder return above 300%, indicating recent momentum has been strong.

If this kind of rebound has your attention, it may be a useful time to scan for other income focused names and infrastructure plays via our 30 power grid technology and infrastructure stocks

With units up strongly over the past year and management now committing up to US$100 million for buybacks, the key question for you is whether NGL still trades at a discount or if the market is already pricing in expectations for future growth.

Preferred Price to Sales Multiple of 0.5x: Is It Justified?

NGL units last closed at $13.54 and, based on a P/S ratio of 0.5x, the market is placing a relatively low sales based valuation on the partnership compared with peers.

The P/S multiple compares the total market value of the equity to annual revenue. It is often used for companies where earnings are still volatile or negative. For NGL, this is relevant because the partnership reported revenue of $3,525.45m and a net loss of $33.63m, so sales give a cleaner base than current profits.

According to the SWS checks, NGL trades at roughly the same level as its estimated fair P/S ratio of 0.5x. This suggests the current market valuation is close to where the model indicates it could settle over time. At the same time, that 0.5x multiple is described as good value against both the US Oil and Gas industry average of 2x and a peer average of 4.1x. This points to a sizeable discount relative to similar businesses even if the fair ratio model itself sits in line with today’s pricing.

Result: Price to Sales ratio of 0.5x (ABOUT RIGHT)

However, revenue growth of 31% decline, alongside a net loss of US$33.63m, means any setback in Water or Liquids Logistics could quickly challenge the current valuation story.

Another View, What the SWS DCF Model Says

The unit price of $13.54 sits below the SWS DCF model estimate of $17.93, which implies NGL trades at roughly a 24.5% discount to that cash flow based fair value. If the P/S ratio looks about right but the cash flows suggest a gap, which signal do you put more weight on?

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 58 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this combination of potential discount and recent strength leaves you undecided, review the numbers yourself and quickly determine whether the current setup fits your style, then weigh those views against the 3 key rewards

Looking for more investment ideas?

If you like what you see with NGL but want more options, now is the moment to scan for other opportunities before the next move passes you by.

• Target resilient cash generators and filter for quality names trading on attractive metrics using the 58 high quality undervalued stocks.
• Strengthen your income stream by focusing on companies with higher yields and robust profiles through the 11 dividend fortresses.
• Prioritize sleep at night holdings by zeroing in on companies with steadier risk profiles via the 72 resilient stocks with low risk scores.

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.