Natural Gas Services Group, Inc. – Value Analysis (NYSE:NGS) : August 4, 2017

Capitalcube gives Natural Gas Services Group, Inc. a score of 63.

Our analysis is based on comparing Natural Gas Services Group, Inc. with the following peers – Archrock Partners LP, Flotek Industries, Inc., Superior Energy Services, Inc. and Graham Corporation (APLP-US, FTK-US, SPN-US and GHM-US).

Investment Outlook

Natural Gas Services Group, Inc. has a fundamental score of 63 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • NGS-US has traded publicly for less than a year.
  • It’s current Price/Book of 1.34 is about median in its peer group.
  • NGS-US‘s operating performance is relatively good compared to its peers. The market currently does not expect high earnings growth relative to its peers but seems to expect the company to maintain its relatively high rates of return.
  • NGS-US‘s relatively high profit margins are burdened by relative asset inefficiency.
  • Changes in annual revenues are in line with its chosen peers but lags in terms of earnings suggesting that the company is less cost conscious and may be spending for growth.
  • Over the last five years, NGS-US‘s return on assets has improved from median to better than the median among its peers, suggesting the company has found relative operating advantages.
  • The company’s median gross margin and relatively high pre-tax margins suggest non-differentiated product portfolio but with tight cost control relative to peers.
  • NGS-US‘s revenue growth in recent years and current P/E ratio are both around their respective peer medians suggesting that historical performance and long-term growth expectations for the company are largely in sync.
  • The company is likely overinvesting in a business with only median returns.
  • NGS-US has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

NGS-US has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 0.16% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 6.39%), and a well-cushioned interest coverage level of 693.88x, NGS-US can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • All 4 peers for the company have an outstanding debt balance.

NGS-US has maintained its Quick & Able profile from the recent year-end.

  • NGS-US‘s interest coverage is downward trending and is below (but within one standard deviation of) its five-year average interest coverage of 1,227.58x.
  • Though its interest coverage decreased to 693.88x from 1,121.88x (in 2016), its peer median remained relatively stable during this period at 1.40x.
  • Interest coverage fell 427.77 points relative to peers. It is also above the 2.50x coverage benchmark unlike the peer median.
  • NGS-US‘s debt-EV is similar to last year’s low of 0.12%, which compares to the 2012 high of 0.52%.
  • Though its debt-EV has remained relatively stable at 0.16% compared to 2016, its peer median has decreased to 6.39% from 8.36% during this period.
  • Relative to peers, debt-EV rose 2.01 percentage points.

Access the detailed analysis for Natural Gas Services Group, Inc.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Archrock Partners LP 58.2 1.9 1.4 13.7
Flotek Industries, Inc. 6.39 1.94 -4.47 -7.17
Superior Energy Services, Inc. 47.57 2.07 -4.74 4.72
Graham Corporation 0.17 3.46 654.4 3672.29
Natural Gas Services Group, Inc. 0.16 21.44 693.88 6225.9
Peer Median 6.39 2.07 1.4 13.7
Best In Class 0.16 21.44 693.88 6225.9

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Company Profile

Natural Gas Services Group, Inc. engages in the provision of small to medium horsepower compression equipment to the natural gas industry. It focuses primarily on the non-conventional natural gas and oil production business in the United States, such as coal bed methane, gas shale, tight gas and oil shales. The firm manufactures, fabricates and rents natural gas compressors that enhance the production of natural gas wells and provide maintenance services for those compressors. It also manufactures and sell flare systems for oil and gas plant and production facilities. The company was founded on December 17, 1998 and is headquartered in Midland, TX.

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