Chamber Energy vs. Earthstone Energy: Which Independent Oil & Gas Stock is a Better Buy?

Camber Energy, Inc. (CEI) is a Houston, Tex.-based independent oil and natural gas company that acquires, develops, and sells crude oil, natural gas, and natural gas liquids in the Cline shale and upper Wolfberry shale Glasscock County, Texas. In comparison, Earthstone Energy, Inc. (ESTE), which is based in The Woodlands, Tex., is also an independent oil and gas company that acquires, explores for, develops, and produces oil and natural gas properties in the United States.

Crude oil prices have rallied over the past year owing to steady draws on oil inventories and OPEC’s reluctance to raise its production levels. However, Brent crude futures dipped 69 cents to $84.09 a barrel on November 10 after the U.S. inventory report showed a rise in U.S. crude inventories by 1 million barrels in the most recent week.

The U.S. Energy Information Administration (EIA) expects Brent prices to decline from current levels to an annual average of $72/b in 2022. Furthermore, the organization forecasts that retail gasoline prices will average $3.32/gal in November and then decline to $3.16/gal in December. In contrast, natural gas prices are expected to remain at current levels through year’s end. However, prices are expected to be volatile due to uncertainty around seasonal demand. So, let’s compare CEI and ESTE to see which is fundamentally more stable and better equipped to withstand the potential volatility.

CEI shares have  gained 70.8% in price over the past six months, while ESTE has returned 22.5%. However, ESTE’s 117.8% gains year-to-date compare with CEI’s 19.1% returns. In terms of their past year’s performance, ESTE is the winner with 299% gains versus CEI’s 54.1%.

But which stock is a better buy now? Let’s find out.

Latest Developments

On November 10, The Klein Law Firm announced that a class action complaint had been filed on behalf of shareholders of CEI alleging that the company violated federal securities laws. Also, Bragar Eagel & Squire, P.C., a nationally recognized stockholder rights law firm, reminded investors that a class action lawsuit had been filed against CEI concerning materially false and misleading statements regarding the company’s business operations and compliance policies.

On November 2, ESTE announced the acquisition of privately-held operating assets located in the Midland Basin from Foreland Investments LP and from BCC-Foreland LLC, which held well-bore interests in some  of the producing wells operated by Foreland. The acquisition should be a valuable addition to ESTE’s  production base for the long term. However, with the acquisitions the company has incurred substantial expenses that could negatively impact its cash balance and liquidity position.

Recent Financial Results

CEI’s total revenues declined 38.1% year-over-year to $57,458 in its last reported quarter, ended September 30, 2020. Its operating loss stood at $827,642, reflecting a 20.7% decline year-over-year. The company’s net loss per share decreased 95.7% year-over-year to $0.19.

For its  fiscal third quarter, ended September 30, ESTE’s total revenues increased 168.9% year-over-year to $110.38 million. Its adjusted EBITDAX grew 78.7% from its year-ago value to $65.04 million. And its adjusted net income attributable to ESTE improved 735% from the same period last year to $30.66 million. The company’s adjusted EPS improved 483.3% year-over-year to $0.35.

Past and Expected Financial Performance

CEI’s revenues and total assets have declined at CAGRs of 67% and 30.1%, respectively, over the past three years.

In comparison,  ESTE’s revenues and total assets have grown at CAGRs of 27.3% and 16.6%, respectively, over the past three years. Analysts expect the company’s revenue to increase 194.8% in the current quarter and 161.1% in the current year. The company’s EPS is expected to grow 300% in the current quarter and 171.7% in the current year. And  ESTE’s EPS is expected to grow 21% per annum over the next five years.

Profitability

ESTE is more profitable, with gross profit  and EBITDA margins of 80.03% and 26.98%, respectively, compared to CEI’s negative 0.47% and 1,524.01%.

Also, ESTE’s  negative 2.91%, 0.84%, and 0.95% respective ROE, ROA, and ROTC compare with CEI’s negative 29.42%, 12.20%, and 13.79%.

Valuation

In terms of trailing-12-month EV/Sales, CEI is currently trading at 1,155.68x, which is substantially higher than ESTE’s 4.46x. Also, CEI’s 39.31 trailing-12-months Price/Sales ratio  is 95.8% higher than ESTE’s 1.64.

Thus, ESTE is relatively affordable here.

POWR Ratings

ESTE has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. In contrast, CEI has an overall rating of F, which translates to Strong Sell. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

ESTE has a B Growth grade, which is consistent with its stable rise in financials in the latest quarter. In comparison, CEI has a D Growth grade, which is in sync with its declining financials in the last reported quarter.

ESTE has a grade of C for Value. ESTE’s 1.64x trailing-12-months Price/Sales is 4.6% higher than the 1.57 industry average. On the other hand, CEI has an F grade for Value. This is justified because CEI’s 39.31x trailing-12-months Price/Sales is 2,410.2% higher than the industry average.

Of the 84 stocks in the Energy - Oil & Gas industry, ESTE is ranked #33, while CEI is ranked #83.

Beyond what we have stated above, we have also rated both the stocks for Momentum, Stability, Quality, and Sentiments. Click here to view ESTE ratings. Also, get all CEI ratings here.

The Winner

EIA expects oil prices to decline from their current levels in the coming months due to production increases by OPEC+ and other oil-producing countries. But the organization also sees uncertainty in demand. Considering CEI and ESTE’s lofty valuation and low profitability, we think neither stock is worth betting on now.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Energy - Oil & Gas industry here.

ESTE shares were trading at $11.83 per share on Thursday afternoon, up $0.22 (+1.89%). Year-to-date, ESTE has gained 121.95%, versus a 25.47% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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