Valuation multiple

The forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple is used to value and compare crude tanker companies. The EV-to-EBITDA multiple for Nordic American Tankers (NAT) was 6.59x as of February 11, 2016.

Nordic American Tankers’ EV-to-EBITDA Multiple Beat Its Peers

Why EV-to-EBITDA?

Crude (DBO) tanker companies are cyclical and volatile in nature. These companies are capital intensive, with high levels of depreciation and amortization. Also, these companies have varying degrees of financial leverage. Such companies are generally valued and compared using an EV-to-EBITDA multiple.

A forward EV-to-EBITDA multiple tells us how a company is valued for each dollar of EBITDA that it’s expected to earn. A lower ratio may indicate that a company is undervalued.

Past comparison

Nordic American Tankers (NAT) is currently trading below its average one-year multiple. Its average EV-to-EBITDA multiple for the past year was 7.84x, and its highest and lowest multiples in the past year were 9.30x and 5.97x, respectively.

Generally, low valuation multiples follow stock rebounds. If analysts’ estimates for EBITDA are considered to be at an appropriate level, Nordic American Tankers’ valuation multiple could be good news for investors.

Peer comparison

Nordic American Tankers, which is trading at 6.59x, has the highest multiple among its peers. The following are the EV-to-EBITDA multiples of NAT’s peers:

  • Teekay Tankers (TNK) is trading at 4.73x.
  • Tsakos Energy Navigation (TNP) is trading at 4.58x.
  • DHT Holdings (DHT) is trading at 6.35x.
  • Frontline (FRO) is trading at 4.62x.

Investors who are interested in broad exposure to industrials can invest in the SPDR Dow Jones Industrial Average ETF (DIA).

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