Whether you see them or not, energy businesses play a crucial part in our daily activities, from powering our homes and businesses to powering our transportation and industries.Their momentum is also rising as lower interest rates and AI energy needs have incentivized higher capital spending, and as a result, the industry has posted a six-month gain of 39.1%. This was a good place to be as the S&P 500 tumbled by 2%.
Regardless of these results, investors should tread carefully. The diversity of companies in this space means that not all are created equal or well-positioned for the inescapable downturn. Taking that into account, here are three energy stocks best left ignored.
DHT Holdings (DHT)
Market Cap: $2.98 billion
With each vessel capable of carrying roughly 2 million barrels of oil—enough to fill about 125 Olympic swimming pools—DHT Holdings (NYSE: DHT) operates very large crude carriers that transport crude oil across international routes for energy companies and traders.
Why Do We Think Twice About DHT?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 7.6% annually over the last five years
- Subscale operations are evident in its revenue base of $370.3 million, meaning it has fewer distribution channels than its larger rivals
- Gross margin of 30.9% reflects its high production costs and unfavorable asset base
At $18.56 per share, DHT Holdings trades at 9.6x forward P/E. If you’re considering DHT for your portfolio, see our FREE research report to learn more.
Calumet (CLMT)
Market Cap: $3.1 billion
With roots dating back to 1919 and facilities strategically positioned from Louisiana to Montana, Calumet (NASDAQ: CLMT) refines crude oil into specialty products like lubricating oils, solvents, and waxes used in cosmetics, batteries, and industrial applications.
Why Do We Steer Clear of CLMT?
- Sales were flat over the last ten years, indicating it’s failed to expand this cycle
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 7.8%
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Calumet is trading at $35.75 per share, or 12.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why CLMT doesn’t pass our bar.
Expro (XPRO)
Market Cap: $1.88 billion
Operating in over 50 countries from deepwater offshore platforms to remote onshore fields, Expro (NYSE: XPRO) provides equipment and services that help oil and gas companies drill wells, measure production, and maintain well integrity.
Why Are We Hesitant About XPRO?
- Revenue base of $1.61 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Gross margin of 19.9% reflects its high production costs and unfavorable asset base
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1% for the last five years
Expro’s stock price of $16.62 implies a valuation ratio of 17.3x forward P/E. To fully understand why you should be careful with XPRO, check out our full research report (it’s free).
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