Strong tanker market and resolved disruptions put Nordic American Tankers in focus

Nordic American Tankers (NAT) is back in the spotlight after management highlighted an exceptionally strong tanker market, together with the release of vessels previously trapped in the Arabian Gulf and a minor incident resolved in the Black Sea.

At a share price of $6.42, Nordic American Tankers has logged a 90.5% year to date share price return and a 166.42% 1 year total shareholder return, indicating recent share price momentum as operational disruptions clear and investors reassess risk in the tanker market.

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The question now is whether Nordic American Tankers’ sharp rerating mainly mirrors sturdier underlying earnings power, or whether sentiment around a hot tanker market has simply swung too far, which takes the discussion straight into valuation.

Price-to-earnings of 25x for Nordic American Tankers: Is it justified?

On current numbers, Nordic American Tankers trades on a P/E of 25x, which sits above several reference points and may help explain the sharp share price move.

The P/E ratio compares what you are paying today to the company’s earnings per share. A higher multiple generally implies stronger expectations being priced in.

For Nordic American Tankers, that 25x multiple is materially higher than the US Oil and Gas industry average of 14.5x. It is also above an estimated fair P/E of 13x, a level the market could gravitate toward if expectations cool.

Result: Price-to-earnings of 25x (OVERVALUED).

However, Nordic American Tankers’ P/E premium could be vulnerable if revenue, which currently stands at $331.99 million, weakens further or if tanker rates lose support.

Another view on Nordic American Tankers’ valuation

Our DCF model offers a second lens on Nordic American Tankers. On this approach, the stock at $6.42 sits above an estimated future cash flow value of $6, which points to a more conservative picture than the 25x P/E. This raises the question of whether the premium reflects quality or primarily stems from excitement around tankers.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Nordic American Tankers 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 38 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

With sentiment around Nordic American Tankers clearly split between enthusiasm and caution, take a moment to weigh the evidence yourself and decide how compelling the risk reward tradeoff really looks in your portfolio, starting with the 2 key rewards and 3 important warning signs.

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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.