SGU

We rate STAR GROUP, L.P. (SGU) as a Buy with a composite score of 68.7/100 at a current price of $12.96. The stock scores above average across the majority of our six quantitative factors and ranks #135 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in stability (97th percentile) and quality (82th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (30th percentile) and momentum (63th percentile) tempers our overall conviction. We assign a Narrow Moat rating (48/100), Low uncertainty, and Exemplary capital allocation.

Key items to watch: sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

STAR GROUP, L.P. holds a top-quartile position (#3 of 50) within the Retail Trade sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 68.7/100 places it at rank #135 in our full 7,333-stock universe. At $399M in market capitalization, STAR GROUP, L.P. is a small-cap player in the Retail Trade space, which limits certain scale advantages but may allow for more agile strategic execution.

The near-term outlook is constructive, with revenue growing at 63% and momentum in the 63th percentile confirming positive market sentiment and institutional accumulation. The combination of strong top-line growth and favorable price dynamics suggests the company is executing well on its growth strategy. Investment factor at the 30th percentile indicates reinvestment patterns that investors should monitor for sustainability.

The margin cascade tells an important story: gross margins of 32% (-4.6pp vs sector) narrow to operating margins of 8% (+3.8pp vs sector) and net margins of 4.9%, yielding a gross-to-net conversion rate of 15%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $12.96, STAR GROUP, L.P. appears undervalued relative to its fundamentals. Our value factor score of 79/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 3.1x (a 85% discount to the sector median of 21.4x), EV/EBITDA of 2.8x (discounted to peers), P/B of 1.3x, P/S of 0.2x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Low uncertainty rating to STAR GROUP, L.P.. The company exhibits strong financial stability with a beta of 0.12, and a stability factor in the 97th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: low beta of 0.12 — while defensive, this may indicate limited upside participation in bull markets; the combination of leverage (79% D/E) and thin margins (4.9% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 97th percentile and quality factor at the 82th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (97th percentile) suggests predictable business dynamics; a 6.14% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate STAR GROUP, L.P.'s capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 42.9%, a 6.14% dividend yield. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — STAR GROUP, L.P. meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. The company returns capital via a 6.14% dividend yield, and the combination of 13.1% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, STAR GROUP, L.P. receives a Buy rating with a composite score of 68.7/100 (rank #135 of 7,333). Our quantitative framework assigns a Narrow Moat (48/100, trend: stable), Low uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 70/100.

Our analysis supports a constructive view on STAR GROUP, L.P.. The combination of identifiable competitive advantages, low uncertainty, and exemplary capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.