The oil and gas industry made a strong comeback last year. According to the IEA, worldwide oil consumption has outstripped supply by 2.1 million BPD and could surpass 2019 levels this year.
Oil and gas prices have been rising since Russia’s invasion of Ukraine and have even touched multi-year highs of late. The oil benchmarks—Brent and WTI—hit record highs due to the bans on importing oil from Russia, which is the world’s third-largest oil producer and second-largest oil exporter. Also, it is the largest natural gas provider in Europe. And Russia’s seeming disinterest currently in de-escalating the war may invite more sanctions, leading to severe supply disruptions and potentially more increases in oil and gas prices.
Although oil and gas companies should benefit from the rising prices of these commodities, fundamentally weak stocks in this space Tellurian Inc. (TELL), PEDEVCO Corp. (PED), and Houston American Energy Corp. (HUSA) are trading at lofty valuations. Hence, we think it could be wise to avoid these stocks now.
Tellurian Inc. (TELL)
TELL in Houston , Tex., develops, owns, and operates a global natural gas business and delivers natural gas to customers worldwide. The company is developing a portfolio of natural gas, LNG marketing, and infrastructure assets, including an LNG terminal facility and related pipelines.
In January, a California-based shareholder Chris Parker sued TELL Chairman Charif Souki after accusing him of fraud concerning an agreement made over TELL stock. The shareholder alleged that Souki reneged on a promise to cover any investment loss incurred by him.
TELL’s cost of sales for its fiscal year 2021 increased 111.5% year-over-year to $36.43 million. The company’s general and administrative expenses increased 81.4% year-over-year to $85.90 million. Also, its total long-term liabilities increased 77.5% year-over-year to $114.70 million.
In terms of forward P/S and EV/S, TELL’s respective 6.25x and 5.21x are higher than the 1.52x and 2.22x industry averages.
Analysts expect TELL’s EPS to remain negative this year and next year. Its revenue for the quarter ending June 30, 2022, is expected to decline 8.4% year-over-year to $23.22 million. Also, it failed to surpass the Street’s EPS estimates in three of the trailing four quarters. And over the past nine months, the stock has declined 1% in price to close the last trading session at $4.05.
TELL’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an F grade for Value, Stability, and Quality and a D grade for Sentiment. It is ranked last in the A-rated Energy – Oil & Gas industry, which has 87 stocks. Click here to see the other ratings of TELL for Growth and Momentum.
PEDEVCO Corp. (PED)
Houston, Tex.-Based PED is an oil and gas company that is focused on acquiring and developing oil and natural gas assets. The company’s properties are in the San Andres formation of the Permian Basin situated in West Texas and Eastern New Mexico and the Denver-Julesburg Basin in Colorado.
PED’s lease operating costs increased 34% year-over-year to $5.94 million for its fiscal year 2021. The company’s total current liabilities increased 161.9% year-over-year to $5.18 million. Also, its total liabilities increased 71.5% year-over-year to $6.73 million.
In terms of forward P/S and EV/EBIT, PED’s respective 2.63x and 14.49x are higher than the 1.52x and 10.6x industry averages. Over the past year, the stock has declined 7.6% in price to close the last trading session at $1.46.
PED’s POWR Ratings reflect its bleak prospects. It has a D grade for Value and Stability. It is ranked #80 of 87 stocks in the Energy – Oil & Gas industry. To see the other ratings of PED for Growth, Momentum, Sentiment, and Quality, click here.
Houston American Energy Corp. (HUSA)
HUSA is an oil and gas exploration and production company in Houston, Tex. It is an independent oil and gas company that is focused on developing, exploring, exploiting, acquiring, and producing natural gas and crude oil properties.
HUSA’s total operating expense increased 65.1% year-over-year to $642,210 for the third quarter ended September 30, 2021. The company’s loss from operations widened 34% year-over-year to $351,840. Also, its net loss widened 35% year-over-year to $350,870.
In terms of trailing-12-month EV/S and P/S, HUSA’s respective 44.45x and 52.87x are higher than the 2.66x and 1.73x industry averages. Over the past month, the stock has gained 458.8% in price to close the last trading session at $6.65.
HUSA’s weak prospects are reflected in its POWR Ratings. It has an overall D rating, which equates to a Sell in our rating system.
It has an F grade for Value and a D grade for Stability, Sentiment, and Quality. It is ranked #86 out of 87 stocks in the Energy – Oil & Gas industry. Click here to see the additional ratings of Growth and Momentum for HUSA.
TELL shares were trading at $4.03 per share on Friday morning, down $0.02 (-0.49%). Year-to-date, TELL has gained 30.84%, versus a -7.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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