The systemic hurrah that’s been supporting commodity prices may well be coming to an end. Natural gas stocks are exceptionally volatile due to their underlying production cycle. Unlike oil, natural gas and liquified natural gas don’t get stored in reserves for all that long; thus, price changes are linked to immediate supply and demand without much consideration of reserves.
I’ve identified two stocks with opposing destinies if commodity prices had to slow down; they’re exceptionally volatile, meaning they could be millionaire makers but also bank breakers. Let’s get into it.
Natural Gas Stocks to Consider: Tellurian (TELL)
Tellurian is a natural gas producer and infrastructure developer. 75.73% of the company’s revenue derives from liquified natural gas sales, making it the dominant segment within the organization. Historically speaking, Tellurian’s breakeven cost is around the $2.00/MMBtu level, leaving it with a lot of breathing space, considering current prices are still more than 2.5 times that amount.
Apart from systemic support, TELL stock brings two exciting aspects with it. One, the company has a clean balance sheet with a debt to equity ratio of only 17.41%, which has been made look even better by the company’s third-quarter results, in which it posted $15.66 million in natural gas sales revenue (+105.8% year-over-year).
The second aspect is the company’s decision to embark on the Driftwood export project, and Tellurium is in the process of financing a $12 billion deal with debt. It’s forecast that cash flows will cover the cost outlay within as little as three years. This project could be a turning point for the company, and we could see it becoming a force to be reckoned with in the energy sector.
TELL stock is still in a growth phase thus valuation multiples don’t account for much. However, 96.67% revenue growth is expected over the next year, this could come on the back of a 314.81% increase in tangible book value over the past year.
These two data points combined suggest that plenty of upside potential could be ahead for those investors who’re willing to take on a bit of risk.
Camber Energy (CEI)
Camber Energy has historically generated around 25% of its revenue from natural and liquified natural gas sales. The rest of its revenue is from crude oil sales.
CEI stock is one of the most-mentioned names among Reddit’s r/WallStreetBets crowd for several reasons. Camber has been in the middle of a storm of legal accusations as it significantly increased its share count between February and October. According to a third-party source, the share count increased due to an anonymous institutional investor converting its preferred shares into 250 million common shares.
News also broke that Camber can’t perform a much-anticipated stock split as it only has 436 000 shares left to issue before it reaches its limit. However, sufficient evidence of such a claim is yet to be made public.
Furthermore, in October, Kerrisdale Capital released a short report claiming that the firm has breached leverage agreements on their covenant by using a loophole in the agreement via an ESG IP acquisition. The market reacted negatively to this with a 52% subsequent slump in the company’s stock price.
From a production vantage point, Camber is a small energy producer with approximately 145 smaller-scale oil and gas plants. It has only posted $300 million (-39.35% year-over-year) in revenue since the third quarter of 2020. Furthermore, the company carries a significant amount of debt on its balance sheet with a leverage ratio of 121%.
Probably the most concerning thing to me about this stock is the company’s exceptionally low-quality financial reporting. Getting hold of financial information on Camber Energy requires you to read through unaudited 8-K statements and broadly defined management comments on past events.
I remain highly skeptical of Camber Energy; apart from the controversy at hand, the company should be considered distressed with its high level of debt and its inability to produce meaningful revenue during a period of supportive systemic factors.
On the date of publication, Steve Booyens did not hold any long or short positions in any of the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.