Scorpio Tankers (STNG) Orders Four Newbuilds, Is The Stock Still Cheap?
Scorpio Tankers fleet move puts newbuild order in focus
Scorpio Tankers (STNG) has put fresh capital to work in its fleet. The company agreed to buy four scrubber fitted newbuild tankers, including two LR2 product carriers and two VLCCs.
Recent trading has been strong for Scorpio Tankers, with a 1 day share price return of 4.31% and a 30 day move of 7.34% helping push the share price to US$88.15. The year to date share price return of 77.40% and a 5 year total shareholder return that is almost 5x hint that momentum has been building around both its fleet decisions and broader investment case.
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Scorpio Tankers now trades near recent highs after a sharp multi year run, while revenue and net income both show annual declines. Are investors paying up for the business, or for sentiment around the fleet story?
Most Popular Narrative: 10% Undervalued
On Simply Wall St, the most followed narrative pegs Scorpio Tankers fair value at $97.70 using a 9.1% discount rate, versus the latest close at $88.15. This implies investors are still pricing the stock below that framework.
The move to a net cash position of about US$1.3b, together with refinancing high coupon debt into sub 2% convertibles and lower margin bank facilities, reduces interest expense and gives Scorpio Tankers more flexibility to allocate cash to vessel renewal, potential repurchases and dividends, which can support earnings per share and free cash flow.
See why 21 investors see Scorpio Tankers as 10% undervalued.
Result: Fair Value of $97.70 (UNDERVALUED)
Still, if refined product demand weakens faster than expected or a surge in new tanker ordering creates overcapacity, the Scorpio Tankers narrative could look very different.
Find out about the key risks to this Scorpio Tankers narrative.
Next Steps
Mixed signals around Scorpio Tankers can easily pull sentiment in opposite directions, so review the data now and weigh both sides of the story. To see the balance of optimism and concern in one place, start with the 3 key rewards and 4 important warning signs.
Looking for more investment ideas beyond Scorpio Tankers?
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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.
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