Headquartered in London, TORM plc (TRMD) transports refined oil products and crude oil worldwide. The company transports gasoline, jet fuel, and naphtha.
TRMD’s shares have gained 76.1% in price year-to-date and 54.2% over the past year to close the last trading session at $14.02. It is currently trading 4.4% below its 52-week high of $14.68, which it hit on June 2, 2022.
Freight rates have risen multiple times since the onset of the COVID-19 pandemic, benefiting TRMD significantly. However, the spot rates have been declining gradually since the start of the year. Freight rates are cooling with the end of government stimulus measures. Also, the end of lockdowns in China is expected to drive a further decline in freight rates.
Here is what could influence the performance of TRMD in the coming months:
Robust Financials
TRMD’s revenue increased 68.7% year-over-year to $209.40 million for the first quarter ended March 31, 2022. The company’s net profit came in at $10.40 million, compared to $21.30 million net loss in the year-ago period. Also, its total assets increased 15.8% year-over-year to $2.31 billion. In addition, its EPS came in at $0.12, compared to a $0.28 loss per share.
Favorable Analyst Estimates
Analysts expect TRMD’s EPS and revenue for the quarter ending June 30, 2022, to increase 2,871% and 56.5%, respectively, year-over-year to $1.23 and $236.10 million.
Stretched Valuation
In terms of forward EV/S, TRMD’s 2.68x is 26.8% higher than the 2.11x industry average. Its 49.28x trailing-12-month EV/EBIT is 215.7% higher than the 15.61x industry average. And the stock’s 20.42x trailing-12-month P/CF is 189.7% higher than the 7.05x industry average.
Lower-than-industry Profitability
TRMD’s trailing-12-month net income margin is negative compared to the 6.18% industry average. And its 6.11% trailing-12-month EBIT margin is lower than the 11.07% industry average. Furthermore, the stock’s 0.33% trailing-12-month asset turnover ratio is 38.3% lower than the 0.53% industry average.
POWR Ratings Reflect Uncertainty
TRMD has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. TRMD has an A grade for Momentum. This is justified because the stock is currently trading above its 50-day and 200-day moving averages of $10.68 and $8.59, respectively.
The stock has a C grade for Value. The stock’s stretched valuation is in sync with this grade.
TRMD is ranked #32 out of 46 stocks in the A-rated Shipping industry. Click here to access TRMD’s ratings for Growth, Sentiment, Stability, and Quality.
Bottom Line
Declining freight rates could impact TRMD’s profitability significantly. Furthermore, given its stretched valuation, we think it could be wise to wait for a better entry point in the stock.
How Does TORM plc (TRMD) Stack Up Against its Peers?
While TRMD has an overall POWR Rating of C, one might want to consider investing in the following Shipping stocks with an A (Strong Buy) or B (Buy) rating: A.P. Møller - Mærsk A/S (AMKBY), Overseas Shipholding Group, Inc. (OSG), and ZIM Integrated Shipping Services Ltd. (ZIM).
TRMD shares were trading at $13.94 per share on Monday morning, down $0.08 (-0.57%). Year-to-date, TRMD has gained 75.13%, versus a -12.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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