Today is Monday, December 30, 2019, and this is your daily oil stocks roundup. Today we’re looking at the valuations of Diamondback Energy (NASDAQ: FANG), BP (NYSE: BP), and CNOOC (NYSE: CEO).
Diamondback Energy (NASDAQ: FANG)
Diamondback Energy (NASDAQ: FANG) is a $1.467 billion company today with a one-year return of -2.27%. Let’s look at its price-to-earnings (P/E) ratio, its enterprise-value-to-free-cash-flow (EV/CF) ratio, and its debt-to-equity ratio to gauge whether or not it’s a good investment.
The company’s P/E ratio of 13.2 is 59.06% higher than the industry average of 8.299. That’s not good. A company’s P/E ratio shows its price as a multiple of its earnings per share (EPS). A relatively high P/E ratio is generally an indicator that a company is overvalued.
Diamondback Energy’s enterprise-value-to-free-cash-flow (EV/FCF) ratio of -8.729 is below zero. That’s not good.
A company’s EV/FCF ratio measures its enterprise value (market cap adjusted for cash holdings and debt) against its free cash flow (how much money the company has after all of its cash outflows). A below-zero EV/FCF ratio indicates that one of these numbers is negative — and that’s never a good sign.
The debt-to-equity (D/E) ratio of Diamondback Energy has decreased by 13.79% over the last year. That’s good.
A company’s D/E ratio equals its total liabilities divided by its shareholder equity. It’s a measure of a company’s financial leverage. A declining D/E ratio indicates that a company is decreasing its debt burden over time, while a rising ratio indicates that a company is taking on more debt over time.
Diamondback Energy has scored favorably on 1 of our 3 valuation metrics. With this in mind, we believe the stock is slightly overvalued.
BP (NYSE: BP)
BP (NYSE: BP) is a $12.745 billion company today with a one-year return of 0.34%. Judging by its price-to-earnings (P/E) ratio, its enterprise-value-to-free-cash-flow (EV/CF) ratio, and its debt-to-equity ratio, is it a good investment?
The company’s P/E ratio of 26.72 is 221.97% higher than the industry average of 8.299. That’s not good.
BP’s enterprise-value-to-free-cash-flow (EV/FCF) ratio of 23.33 is 9.84% higher than its industry average of 21.24. Not a good sign.
The debt-to-equity (D/E) ratio of BP has increased by 6.44% over the last year. That’s not good.
BP has scored favorably on 0 of our 3 valuation metrics. With this in mind, we believe the stock is very overvalued.
CNOOC (NYSE: CEO)
CNOOC (NYSE: CEO) is a $7.396 billion company today with a one-year return of 9.23%. Is it a good value based on its price-to-earnings (P/E) ratio, its enterprise-value-to-free-cash-flow (EV/CF) ratio, and its debt-to-equity ratio?
The company’s P/E ratio of 8.817 is 6.24% higher than the industry average of 8.299. That’s not good.
CNOOC’s enterprise-value-to-free-cash-flow (EV/FCF) ratio of 3.723 is 82.47% lower than its industry average of 21.24. That’s good.
The debt-to-equity (D/E) ratio of CNOOC has decreased by 4.16% over the last year. That’s good.
CNOOC has scored favorably on 2 of our 3 valuation metrics. With this in mind, we believe the stock is a good value.
To summarize, we believe Diamondback Energy (NASDAQ: FANG) is slightly overvalued, BP (NYSE: BP) is very overvalued, and CNOOC (NYSE: CEO) is a good value.
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