We came across a bullish thesis on Sasol Limited (SSL) on Substack by Busy Investor Stock Reports. In this article, we will summarize the bulls’ thesis on SSL. Sasol Limited (SSL)'s share was trading at $4.47 as of Feb 14^th. SSL’s trailing and forward P/E were 10.62 and 7.81 respectively according to Yahoo Finance.

A trucker on the highway, hauling a full tanker of gas and diesel fuel.

Sasol is an intriguing company, despite facing a complex situation and a 93% decline from its all-time highs. While its stock price suggests otherwise, Sasol has grown significantly since 2001, with revenues rising from $4B to $15B, adjusted for exchange rates. Despite this revenue growth, the stock has underperformed, reflecting the volatility of its business operations. However, the company has earned strong returns on capital, with an average ROCE of 18.7% and ROIC of 14% since 2001, and has maintained a stable share count, up just 1% over the past two decades. Sasol’s current valuation is attractive, trading at just 0.32x sales and 2.8x its peak free cash flow (FCF) in recent years. While FCF generation is volatile and sometimes negative, Sasol offers significant upside potential for investors who can time their entry during a trough in its cycle.

The company’s operations span across coal mining, natural gas, oil, gas stations, and chemicals, making it a complex entity to analyze. Key to understanding Sasol’s future will be assessing its growth prospects and solvency. Sasol has a significant amount of debt—ZAR 131.1B in long-term debt and ZAR 48.9B in cash—but its cash flow is currently on a downtrend, turning negative recently. This raises concerns about its ability to service debt. The turnaround catalyst may come from a rebound in the prices of its key commodities, such as oil, ethane, and polyethylene, which could potentially reverse its financial fortunes.

Sasol Limited (SSL) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held SSL at the end of the third quarter which was 11 in the previous quarter. While we acknowledge the risk and potential of SSL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SSL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.