Earthstone Energy (ESTE): An Undervalued Gem in the Oil & Gas Industry?
Earthstone Energy Inc (NYSE:ESTE) witnessed a daily gain of 2.51% and a significant 3-month increase of 37.42%. With an Earnings Per Share (EPS) (EPS) of 4.24, the question arises: is the stock modestly undervalued? This article delves into an in-depth valuation analysis of Earthstone Energy, highlighting its financial strengths, profitability, growth, and intrinsic value. Let's explore.
Company Overview
Earthstone Energy Inc is an independent oil and natural gas development and production company. It primarily focuses on the acquisition, development, exploration, and production of onshore, crude oil and natural gas reserves. Earthstone Energy also actively participates in corporate mergers and acquisitions of oil and natural gas properties. Its reserve portfolio includes assets in the Midland Basin of West Texas and the Eagle Ford Trend of South Texas. All its operations are conducted onshore in the United States.
With a current stock price of $18.81 and a market cap of $2 billion, Earthstone Energy's intrinsic value, according to the GF Value, is estimated to be $20.86. This suggests that the stock might be modestly undervalued.
Understanding the GF Value
The GF Value is an exclusive measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
For Earthstone Energy (NYSE:ESTE), the GF Value Line suggests that the stock is modestly undervalued. This implies that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Earthstone Energy's cash-to-debt ratio is 0.05, ranking worse than 85.52% of 1029 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Earthstone Energy's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Earthstone Energy has been profitable 6 out of the past 10 years. Over the past twelve months, the company had a revenue of $1.80 billion and an EPS of $4.24. Its operating margin is 45.11%, ranking better than 87.16% of 981 companies in the Oil & Gas industry. GuruFocus ranks Earthstone Energy's profitability as 7 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. Earthstone Energy's 3-year average annual revenue growth rate is 39.3%, ranking better than 89.16% of 858 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 64%, ranking better than 89.45% of 825 companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can help determine its profitability. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Earthstone Energy's ROIC is 18.29, and its cost of capital is 11.18.
Conclusion
Overall, the stock of Earthstone Energy (NYSE:ESTE) shows every sign of being modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 89.45% of 825 companies in the Oil & Gas industry. To learn more about Earthstone Energy stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
