It’s neither the biggest nor the most famous name in the energy space, but Callon Petroleum (NYSE:CPE) has garnered some interest from the trading community lately. Volatile stocks seem to be in favor now, and CPE stock is definitely a fast mover.
That’s not necessarily a bad thing, though CPE stock’s five-year monthly beta of 2.87 might be a deal breaker for more cautious investors. The question remains, though, as to whether it’s even worthwhile for risk-tolerant traders.
Looking at the full picture, the answer would most likely be no. Sure, there are some favorable aspects to CPE stock. One looming threat, however, should be a big enough red flag to dissuade most prudent, informed investors.
A Closer Look at CPE Stock
I try to be fair and balanced when I analyze stocks, so right now I’ll admit that CPE stock looks interesting from a valuation standpoint. Specifically, CPE sports an ultra-low trailing 12-month price-earnings ratio of 1.09.
Now, I love a low P/E ratio as much as the next financial commentator. But we have to ask ourselves: how low is too low? When the number gets close to 1, it might not be a strong value proposition anymore. It could just be a proverbial falling knife, and you don’t wan’t to try to catch it.
Admittedly, the trailing 12-month earnings per share of $1.066 looks pretty good against a share price that’s a little bit higher than $1. The price action of CPE shares is a bit unnerving, though. CPE was above $2.50 on June 8, only to tumble to $1.15.
On the other hand, CPE stock was close to this price point in March 2009, after which it staged an impressive recovery over the next few years. Could this happen again now? Anything’s possible, but there are issues that must be considered before taking a position.
The most recently reported earnings-related data from Callon Petroleum is from the first quarter of 2020. Callon, which is mainly focused on the exploration and production of oil and natural gas in the Permian Basin, clearly struggled financially during the year’s first three months.
By the final day of March, Callon had total cash and cash equivalents of $14.8 million. That’s a pittance compared to the company’s long-term debt of $3.2 billion at that time. The ratio of total debt to total capital came to 0.49, which is certainly not a favorable number.
Moreover, during the first quarter Callon reported earnings per share of 12 cents. That’s below the analyst consensus estimate of 13 cents, and it represents a year-over-year decrease of 25%.
Quarterly revenue of $315,045,000 also missed the mark as the analyst consensus estimate was $337,740,000. Therefore, the available recent data simply doesn’t make CPE stock a strong buy.
A Major Deal Breaker
There’s one more development which might actually be a bigger deal breaker than the aforementioned data. It’s the fact that the New York Stock Exchange issued Callon Petroleum a warning that the company fell out of compliance with an important rule.
As Callon explains, the NYSE warned the company “that the average closing price of Callon’s shares of common stock had fallen below $1.00 per share over a period of 30 consecutive trading days.” Furthermore, $1 “is the minimum average share price for continued listing on the NYSE.”
Seasoned traders have seen this story unfold before with other companies. Some of them survive and manage to stay on the NYSE, but others don’t.
Callon stated that it “intends to put forth a proposal for a reverse stock split,” but often a reverse split is little more than a temporary fix that doesn’t really address the company’s underlying fiscal problems. Given the aforementioned financial data, we might be witnessing Callon’s final days on the NYSE and, eventually, as a going concern.
The Bottom Line on CPE Stock
If volatile stocks are your bag, then please feel free to indulge in CPE stock if you must. However, unfavorable fiscal data and a delisting threat should be too much for prudent investors to choose to deal with.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
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