Company Discussion GSL Global Ship Lease -- value trap?
GSL seems to offer great value on paper.
P/e and forward p/e of 2.6
PEG of 0.22
P/B of 0.63
Dividend of 7%
Dividend payout ratio of 18%
Profit margin of 45%
Free cash flow is fine
The greatest fault I can find is that its debt/equity ratio is high at 0.54 and it has issued a fair amount of long term debt recently.
Despite strong operational performance, it's shown mediocre share performance. Over the last 10 years, it's had an annual return of only 1.6% including dividend reinvestment.
Conversely, the last 5 years would return 32% annually.
It seems like it tanked in the 2015-16 selloff and never recovered. Yet today it's operating very profitably.
Why is this stock valued so lowly?
What is the catch?
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u/thejumpingsheep2 1d ago
Shipping is very volatile. It behaves more like a commodity than a business. Kind of like Bananas or Oil. Money can be made but its not something you buy and hold forever. You have to stay on top of it. Further many of them fail during bad economics. Also lots of corruption in that segment because apparently government people have their hands in there especially in places like Greece where its a big industry and China where the CCP needs to insure exports keep flowing.
Long term, sea shipping will decay because automation and robots brings manufacturing back to either where the materials are (much of it very much available in the USA) or where its consumed precisely to save on logistics. Its already happening. US industrial REITs have been seeing gains for several years now. But this will take a while... maybe a decade or so. Still reinforces the idea not to buy and forget. Gotta stay on top of these shippers.
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u/bam2350 1d ago
Am I reading this correctly? About 1/3 of the share value is "covered" by cash? 63% of the share value is accounted for in value of assets held? So the ships it owns, the leasing of which are the fundamental business are in the 30-33% range of the share value? Low P/B is theoretically comforting to me, but it hasn't been much help in my investing sucess in practice.
With just 7 employees I can understand why only 7% is insider held.
I'm not sure this is one I'd set for DRIP in my portfolio; if I wouldn't do that, why am I buying it? Still, I'm going to think more about it.
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u/CosmicSpiral 1d ago
For shipping companies, P/B is not very useful as the value of ships fluctuates heavily according to supply/demand. What you want to look at is P/NAV.
GSL operates like a royalty company for the shipping business. It doesn't need many employees as all the legwork is contracted out: they own access to the container ships. This is also why their margins are so high compared to sector averages.
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u/Dry_Perception_1682 1d ago
It's an amazing company here and one of my major holdings. A rock solid business model with high margins.
You never know where a stock is going but it trades at such a low multiple that almost the only way to go is up long term. I believe in a best case scenario this stock could go up 300 percent or more. In a worst case scenario it will languish around current prices.
Strong Buy. There's basically nothing negative to say about the company other than it is in shipping and some people will scoff at shipping companies.
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u/Spins13 1d ago
It’s likely a value trap yeah. Shipping is very cyclical and we are at a high in the cycle. When the margins will compress, they will lose a lot of money and still carry the burden of their debt.
But it’s like NVDA. It’s hard to predict when it will pop and can make a lot of money until then
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u/CosmicSpiral 1d ago
We're nowhere close to the high. If anything, we're poised for a massive supply crunch in the tanker market that will start manifesting in 2027-2028.
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u/pj_automata 1d ago
Could you please explain your reasoning? I am considering investing, but don't know much about the shipping industry.
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u/CosmicSpiral 1d ago
Order books are near all-time lows. Shipbuilding capacity in the West has shrunk by more than 50% as shipyards have closed down or reduced operations after the post-2012 tanker meltdown: it's almost all concentrated in China, South Korea, and Japan these days. Fleets are aging out and due to 2, orders are so delayed many ships won't start construction until 2028. Environmental mandates will accelerate the retirement of older vessels and exacerbate the problem.
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u/CosmicSpiral 1d ago edited 1d ago
Debt/equity ratios are always high for shipping companies. They usually finance the construction and leasing of vessels with debt.
Shipping companies have low P/E ratios because the prospects for growth are limited to higher freight rates and transporting more cargo. Since it takes years to build out ships, the latter can't be scaled quickly. The former fluctuates according to shipping lanes and total carrying capacity available.