Scorpio Tankers currently trades at $50.40 and has been a dream stock for shareholders. It’s returned 344% since September 2020, blowing past the S&P 500’s 82.9% gain. The company has also beaten the index over the past six months as its stock price is up 28.1% thanks to its solid quarterly results.

Is now the time to buy Scorpio Tankers, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Scorpio Tankers Not Exciting?

We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons there are better opportunities than STNG and a stock we'd rather own.

1. Revenue Spiraling Downwards

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Scorpio Tankers struggled to consistently generate demand over the last five years as its sales dropped at a 1.5% annual rate. This was below our standards and signals it’s a lower quality business.

2. Decline in total vessels Points to Weak Demand

Revenue growth can be broken down into changes in price and volume (for companies like Scorpio Tankers, our preferred volume metric is total vessels). While both are important, the latter is the most critical to analyze because prices have a ceiling.

Scorpio Tankers’s total vessels came in at 99 in the latest quarter, and over the last two years, averaged 5.5% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Scorpio Tankers might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability.

3. EPS Took a Dip Over the Last Two Years

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for Scorpio Tankers, its EPS declined by more than its revenue over the last two years, dropping 41.5%. This tells us the company struggled to adjust to shrinking demand.

Final Judgment

Scorpio Tankers isn’t a terrible business, but it doesn’t pass our quality test. With its shares outperforming the market lately, the stock trades at 8.2× forward P/E (or $50.40 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at the most entrenched endpoint security platform on the market.

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