Coterra Energy (NYSE: CTRA) is a diversified energy company, which engages in the exploration, development, and production of oil and natural gas properties. The company was founded in 1989 and is headquartered in Houston, TX.
As of 29 Mar 2022, Coterra Energy's stock is trading at $27.35 and year-to-date (YTD), it is up by 40%. Over the past 12 months, the stock is up by 42%, whilst the S&P 500 is up by 16%, which means the stock has outperformed the broader market by approximately 26% over this period.
Is Coterra Energy stock a long-term investment opportunity? Let’s take a closer look at the company's fundamentals to find out.
Why is fundamental analysis important?
Fundamentals are a set of key metrics that, when looked at holistically, can tell us whether or not a company is likely to be a good investment over the long term. Investors have relied on fundamental analysis for decades to assess the financial health of an organization as well as its growth prospects.
On balance, stock prices are usually driven by a company’s financial performance over the long term, and it makes sense to analyze a company’s fundamentals in detail before deciding to invest.
There are a number of fundamental metrics to analyze, but we'll be focusing on the price to earnings ratio (P/E ratio), price to book value (P/BV), price to sales ratio (P/S ratio), earnings per share (EPS) and debt.
What do Coterra Energy’s fundamentals tell us about the investment opportunity? Let's have a look.
Coterra Energy's stock by the numbers
First, let's look at Coterra Energy's EPS, which serves as an indicator of profitability. This metric is calculated by taking a company's net income (after dividends on preferred stock) and dividing this by the number of outstanding shares.
Based on its most recent financials, Coterra Energy's EPS is 2.3, and year-on-year, it has increased by 358%. This is encouraging growth.
Another key metric to look at is the P/E ratio because it immediately tells a potential investor how cheap or expensive the stock is. The ratio tells us how much investors are willing to pay for a company’s earnings, and it is calculated by taking the price of a stock and dividing it by the EPS. A higher ratio suggests that the stock is expensive in relation to its earnings, and a lower ratio indicates it might offer more value.
CTRA has a P/E ratio of 12.3, based on its last reported financial data. This is 23% lower than the average P/E ratio across its industry (which is 16) and indicates that the stock is relatively inexpensive in relation to how much it earns.
Next, let's look at one of the most common valuation metrics - the P/S ratio. It is calculated as the current price divided by sales for the previous 12 months, and helps us get a sense of how much investors are willing to pay for a company's revenues on a 'per dollar' basis.
Coterra Energy's P/S ratio is currently 3.9 according to its last reported filings. This is 138% higher than the sector-wide average of 1.6. The fact that it is currently above the sector-wide average isn't particularly encouraging, and indicates that the stock may offer less value compared to other companies in the same sector.
Next, let's look at Coterra Energy's price to book value (P/BV), which tells us how much investors are willing to pay for a company's assets. P/BV is used by value investors to identify potential investments, and is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book').
Coterra Energy's P/BV is 1.9 according to its most recent financial statements, and this is 12% lower than the average across the industry, which is 2.2.
Finally, when analyzing an investment opportunity, you should always take a look at how much debt a company has on its books, as this can help you assess how risky it is as an investment. Carrying a large amount of debt can be a red flag if the company is not generating enough free cash flow to service the debt.
Coterra Energy has total debt of $3.5bn as of 29 Mar 2022, and this has risen by 197% over the past year. Adjusting for $1bn in cash & short-term investments, the company has a 'net debt' of $2.4bn.
Based on these figures, Coterra Energy's current levels of net debt don't worry us, as the company generates enough revenue to service its debt, and is not using debt to fund their operations, which is good to see.
Is Coterra Energy a good investment?
All in all, when we looked at the underlying trends at Coterra Energy, we were encouraged by what we saw.
In particular, the stock is up by 40% YTD and up by 42% over the past year. Also, compared to companies in the same sector, CTRA has a lower P/E ratio and lower P/BV. This gives us confidence that the company is on the right track.
All things considered, we think the future is bright for Coterra Energy and it's certainly an interesting company worth keeping an eye on.
Please note that this analysis is general in nature and whether Coterra Energy is a ‘buy’, ’sell’ or ‘hold’ for you will depend on your specific investing objectives, personal circumstances and risk tolerance. This analysis is based on historical data and does not take into account the wider macroeconomic environment, geopolitical issues or individual technicalities in the way a company conducts its business which can have a significant impact on a company's long-term outlook. Please conduct your own due diligence on Coterra Energy before making an investment decision.