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Where Does Stone Energy’s Relative Valuation Stand Next to Peers?

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Aug. 30 2016, Updated 10:04 a.m. ET

Relative valuation

Stone Energy (SGY) has a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio of ~6x, which is lower than Bonanza Creek Energy (BCEI), which has a forward EV-to-EBITDA ratio of ~9x.

SGY’s enterprise multiple is also lower than that of Encana (ECA) and Consol Energy (CNX), which have forward EV-to-EBITDA ratios of ~10x and ~11x, respectively. EOR (enhanced oil recovery) company Denbury Resources (DNR) has a forward EV-to-EBITDA ratio of ~13x, which is higher than that of SGY.

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Price-to-sales and price-to-book multiples

When compared with the price-to-sales metric, SGY appears to be the cheapest among peers, with a multiple of only ~0.2x. SGY has a book value of about -$429 million, which means its book value can’t actually be calculated.

Typically, companies with low leverage or high current ratios trade at a premium to their book value or have high price-to-sales ratios. One possible explanation for this could be the fear of an energy-driven debt crisis if commodity prices stay low, or further decline for much longer than anticipated.

Notably, as of 2Q16, SGY has a shareholder equity of about -$429 million. As of 2Q16, SGY had a much lower current ratio of ~0.69x. Add into this SGY’s inability to produce positive cash flow in 2Q16 despite improved energy prices, and you can see why—especially given its high debt and lower margins—Stone Energy’s stock is trading at such a low multiple.

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