Even during a down period for the markets, Cactus has gone against the grain, climbing to $49.75. Its shares have yielded a 36.5% return over the last six months, beating the S&P 500 by 38.5%. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is it too late to buy WHD? Find out in our full research report, it’s free.
Why Is Cactus a Good Business?
Named for the spiky wellhead equipment that reminded founders of desert cacti, Cactus (NYSE: WHD) manufactures wellheads, valves, and spoolable pipes used in drilling and producing oil and gas wells.
1. Skyrocketing Revenue Shows Strong Momentum
Cyclical sectors like Energy often flatter weaker operators during favorable price environments, but a longer-term lens separates those from businesses that can consistently perform across market cycles. Thankfully, Cactus’s 25.4% annualized revenue growth over the last five years was incredible. Its growth beat the average energy upstream and integrated energy company and shows its offerings resonate with customers.
2. EBITDA Margin Rising, Profits Up
Adjusted EBITDA margin is an important measure of profitability for the sector and accounts for the gross margins and operating costs mentioned previously. Unlike operating margin, it is not distorted by accounting conventions around reserves, drilling costs, and assumptions on commodity consumption from the well or basin. Adjusted EBITDA highlights the economic reality of how much cash the rock produces before the capital structure (debt service) and the drilling budget (capex) are considered.
Analyzing the trend in its profitability, Cactus’s EBITDA margin rose by 5.3 percentage points over the last year, as its sales growth gave it operating leverage. Its EBITDA margin for the trailing 12 months was 32.7%.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Cactus has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the energy upstream and integrated energy sector, averaging 21% over the last five years.
Final Judgment
These are just a few reasons why we think Cactus is a high-quality business, and with its shares outperforming the market lately, the stock trades at 16.4× forward P/E (or $49.75 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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