Energy companies, such as Chesapeake Granite Wash Trust, trading at a market price below their true values are considered to be undervalued. There’s a few ways you can value a company. The most popular methods include discounting the company’s cash flows it is expected to create in the future, or comparing its price to its peers or the value of its assets. Analysing the most recent financial data, I’ve created a list of companies that compare favourably in all criteria, making them potentially good investments.
Chesapeake Granite Wash Trust (NYSE:CHKR)
Chesapeake Granite Wash Trust owns royalty interests in the oil and natural gas properties located in the Colony Granite Wash play in Washita County in the Anadarko Basin of Western Oklahoma. Chesapeake Granite Wash Trust was established in 2011 and with the market cap of USD $74.80M, it falls under the small-cap stocks category.
CHKR’s shares are currently floating at around -66% less than its real value of $4.69, at the market price of US$1.60, based on my discounted cash flow model. The discrepancy signals an opportunity to buy low. In terms of relative valuation, CHKR’s PE ratio is trading at 5.42x while its Oil and Gas peer level trades at, 14.23x indicating that relative to its comparable set of companies, you can purchase CHKR’s stock for a lower price right now. CHKR is also in great financial shape, with short-term assets covering liabilities in the near future as well as in the long run. CHKR has zero debt on its books as well, meaning it has no long term debt obligations to worry about. Dig deeper into Chesapeake Granite Wash Trust here.
Pacific Coast Oil Trust (NYSE:ROYT)
Pacific Coast Oil Trust acquires and holds net profits and royalty interests in various oil and natural gas properties located in California. The company was established in 2012 and with the company’s market cap sitting at USD $80.64M, it falls under the small-cap group.
ROYT’s stock is now hovering at around -32% less than its actual level of $3.06, at the market price of US$2.09, based on my discounted cash flow model. The mismatch signals a potential chance to invest in ROYT at a discounted price. Also, ROYT’s PE ratio is currently around 10.89x relative to its Oil and Gas peer level of, 14.23x implying that relative to its comparable company group, we can buy ROYT’s stock at a cheaper price today. ROYT is also a financially healthy company, as current assets can cover liabilities in the near term and over the long run. ROYT has zero debt on its books as well, meaning it has no long term debt obligations to worry about. More on Pacific Coast Oil Trust here.
SandRidge Mississippian Trust II (NYSE:SDR)
SandRidge Mississippian Trust II holds royalty interests in oil and natural gas properties. The company was established in 2011 and has a market cap of USD $86.52M, putting it in the small-cap stocks category.
SDR’s shares are now trading at -44% under its value of $3.11, at a price of US$1.74, based on my discounted cash flow model. This price and value mismatch indicates a potential opportunity to buy the stock at a low price. Additionally, SDR’s PE ratio stands at 7.6x compared to its Oil and Gas peer level of, 14.23x indicating that relative to its peers, you can buy SDR for a cheaper price. SDR is also strong in terms of its financial health, as short-term assets amply cover upcoming and long-term liabilities. SDR also has no debt on its balance sheet, which gives it headroom to grow and financial flexibility. Continue research on SandRidge Mississippian Trust II here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.