About Golden Ocean Group

They say it’s never a good idea to mix business with pleasure, but we don’t remember ever hearing about any cautionary tales when it comes to mixing business and friend requests.

No, we’re not referring to a friend request on Facebook or a connection request on LinkedIn, we’re referring to the fact that one of MacroHint’s founding partner’s best friends requested that we analyze a Norwegian (headquartered in Bermuda, likely for tax purposes) dry bulk shipping company by the name of Golden Ocean Group.

The company specializes in the shipment and transport of commodities such as coal, ores, fertilizers and grains, according to TD Ameritrade’s platform.

This is an interesting company for many reasons.

For starters, it’s an international company that is seldom analyzed or discussed by the pundits, not to mention that 35% of the company’s shares are owned by oil tanker and shipping businessman John Fredriksen.

35% ownership of a company the size of Golden Ocean Group is considerable to say the least.

Additionally, for a company that isn’t really talked about by the pundits, it handles the transport of some pretty important commodities such as the ones listed above, as they are essential to many objects and products we use on a daily basis.

While this oddly enough isn’t the first time we’ve written a stock analysis article on a European shipping company, it’s somewhat rare that we analyze a company that is this under the radar.

But there’s a first time for everything and sometimes companies that start under the radar can turn out to be phenomenal investments.

Nevertheless, we’re not interested in blindly betting our entire portfolio(s) on one stock; that’s where the research comes in.

Let’s get to know Golden Ocean Group a lot better and gain a better understanding of whether or not this company’s stock is worth buying.

Golden Ocean Group’s stock financials

The company currently has a market capitalization of $1.66 billion, trading at a relatively inexpensive share price of $8.26 (which is just a bonus for retail investors), an astonishingly low price-to-earnings (P/E) ratio of 2.43 all while also transporting an annual dividend to its shareholders of $2.40.

From a strict price-to-earnings perspective, this company’s stock is trading at a massive discount. Specifically, it is generally considered that if a company’s P/E is 20 its trading at fair value or what it’s worth, whereas anything below implies that its share price is undervalued. 

2.43 is a long way from 20 in the right direction from a valuation standpoint.

While we’ve analyzed low P/E companies in recent history, nothing has been able to touch Golden Ocean Group’s exceedingly low valuation. 

We also think it’s appropriate to note that this company pays out an attractively high dividend, yielding nearly 30%. However, looks can sometimes be deceiving and companies can become overleveraged and thus unable to live up to its high dividend, forced to decrease it for the foreseeable future or get rid of it all together.

As we delve a bit deeper into the company’s financials, we’ll be able to get a better idea of whether or not Golden Ocean Group can feasibly afford its current dividend.

Onto the company’s balance sheet, its executive team manages around $3.4 billion in total assets matched with approximately $1.5 billion in total liabilities. 

For a company that has likely seen a lot of recent demand and supply chain stress, it has done a fantastic job in keeping a fortified, asset-heavy balance sheet. This gives us the confidence that even if the supply chain crisis persists or a new variation thereof emerges, Golden Ocean Group’s balance sheet hints that it’s well equipped to handle some pressure that its peers might not otherwise be able to handle.

From an annual revenue standpoint, Golden Ocean Group’s has been trending upward over the past five years. For instance, the company’s total revenue in 2017 stood at $460 million and has since risen each year, except for 2020, up to its last reported value of $1.2 billion, as reported in 2021.

We’re not gravely concerned about this company’s 2020 miniscule revenue dip as this particular year wasn’t exactly a walk in the park for any shipping, logistics or transport company.

We’re actually happy to see that the company’s revenue didn’t fall further than it did given the circumstances.

As somewhat of a reference point, the company’s total revenue in 2019 was pegged at $706 million and dropped to $608 million in 2020. While $98 million isn’t a small sum, it’s relatively small given the company’s operations and in the following years the company’s revenue made up for their mediocre 2020.

According to the company’s cash flow statement, its net income was also negative in 2020, sitting at nearly -$138 million but it subsequently roared back up to what appears to be a record high of just north of $527 million in 2021.

So far, so strong for Golden Ocean Group.

Golden Ocean Group’s stock fundamentals

While it might not initially make sense, competent, smaller companies in this space tend to benefit from developing and cornering their niche and sticking to it.

Not being “extra” as the cool kids say.

That’s what they say, right?

This has worked exceedingly well for Golden Ocean Group on the basis of profitability.

For instance, the company’s trailing twelve month (TTM) net profit margin is 50.93% compared to the industry’s average of 34.11%, according to TD Ameritrade’s platform.

Dry bulk has served this company quite well.

Profitability is quite important to us at MacroHint and we hope it’s important to you too. 

We don’t see a need to go into too many unnecessary details other than make it clear that this company’s ability to turn an outsized profit in comparison to the competition is serious.

When it comes to achieving (TTM) returns on equity, assets and investment, Golden Ocean Group’s returns on equity trail the industry by around 11%, lag the industry in terms of returns on assets by about 1% and also fall short behind its peers from a returns on investment perspective by approximately 6%.

Thankfully, the company isn’t far off from the industry as it relates to these metrics.

We objectively think that where this company lacks in returns it will in time compensate as it gains market share and continues receiving business from its current clients.

An interesting proposition for Golden Ocean Group

It is our team’s opinion that this company is going to continue growing.

Quickly.

This is one of the many reasons we think a major shipping giant such as Maersk should be interested in fully acquiring Golden Ocean Group.

Denmark-headquartered Maersk, the largest shipping container company in the world, is well capitalized and can probably afford to buy out Golden Ocean Group and might actually be inclined to do so in order to not wait and be forced to pay a much higher price as Golden Ocean continues to become more valuable.

While Maersk primarily focuses on international shipping and to a large extent runs the global container ship industry, it could probably benefit from increasing its domestic and local presence across the ports of Europe through transporting more than just troves of containers. 

Instead of experimenting and spending lots of its cash on developing its own local shipping and logistics network, it might make a lot more sense for Maersk to spend a few billion dollars and take over Golden Ocean Group’s fleet and network, perhaps even giving Fredriksen a board seat so as to ensure Maersk would be using his company’s assets properly.

We think both companies should consider this, especially since both can ultimately be major beneficiaries of such a transaction.

Should you buy Golden Ocean Group’s stock?

It pays to have friends with their ears close to the market.

And the maritime shipping industry.

Golden Ocean Group has strong core financials and seems to be well positioned for both headwinds and tailwinds. As long as the company itself continues to operate and provide for its customers in its core markets, we see a very bright future for this company.

We also see major potential for an acquisition which typically bodes well for shareholders.

Given all of this information we give Golden Ocean Group’s stock a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.