We analyzed Dorian LPG based on recent insider activity and depressed valuation for a buy-side opportunity. Our results are as follows with a buy signal of 4, relatively weak. It will be interesting to see how it reacts to earnings Wednesday, June 14th, 2017.
Chart- Bullish Divergence on the RSI +1
Analysts- Analysts have graded Dorian LPG Inc. with four buy and four hold ratings. It is worth taking note that J.P. Morgan valued LPG as a strong buy in early May with a target price of $14, as an overweight stock in comparison to its $9 price at the time. +1
Insiders- Chairman, John Hadjipateras, might see potential growth in the company, and as a result bought 45,000 shares through December and January before LPG’s last earnings report. Investors should gain confidence knowing LPG has only seen insider buying within the last year.+1
Management Discussion 10Q and 10K- There a few risks that could negatively impact Dorian LPG Inc. in the following year. LPG faces a difficult challenge in expanding its relationships with existing customers and obtaining new customers.
Another potential concern facing LPG’s business model is its lack of diversification, “Approximately 70.2% of our revenue was generated through the Helios Pool as net pool revenues.” Relying heavily on a few customers could be a significant liability to its potential earnings especially facing obstacles in expanding its client base.
However, the company has a competitive advantage, leading the industry with its fleet of Eco-design VLGCs. The Eco fleet could be beneficial to the company keeping the company as a leader due to the proposed future regulations and liabilities enforced by the International Maritime Organization. 0
Relative Performance- Even with a bullish market since the U.S. election, Dorian LPG is lagging. The company currently sits at its lowest point of 2017 YTD down 35% from its high in January. -1
Sector Outlook- I see a red flag with Dorian LPG Inc. underperforming contrary to the positive growth in its sector. The transportation sector showed impressive results and outperformed the S&P 500 over the last three months at 4.65% and 2.36% respectively. +1
Cash Flow- Dorian LPG has positive operating cash flows of $53 million over the last year. +1
PEG Ratio- Dorian’s PEG ratio is -0.79, not seeing positive earnings growth in the company’s last reported earnings. -1
Valuation- According to my DCF, LPG’s stock is overvalued as a result of low free cash flows. 0
Catalyst- We have to wait and see if Saudi Arabia, Egypt, UAE, & Bahrain closing their borders Qatar will have adverse impacts on Dorian LPG’s business as of a result of the business’ reliance on the economies in the Middle East. Also, Morgan Stanley’s Annual Shipping Conference on June 20 could be seen as a potential catalyst for Dorian LPG. +1