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Is Jagged Peak Energy’s Valuation Justified?

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Aug. 18 2020, Updated 5:31 a.m. ET

Jagged Peak Energy

This year, Jagged Peak Energy (JAG), has been the third-weakest US upstream stock. Jagged Peak Energy is a growth-oriented crude oil and natural gas producer with operations in the Permian Basin.

JAG has fallen this year, by ~25% from its 2017 close of $15.78 to $11.79 on June 12. Jagged Peak Energy is underperforming the SPDR S&P Oil and Gas Exploration & Production ETF (XOP), which has risen ~13% this year, as well as crude oil (UWT) and natural gas (UGAZ), which have returned ~10% and ~0.5%, respectively. In comparison, the Energy Select Sector SPDR ETF (XLE) has risen ~6%

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Jagged Peak Energy’s revenue and earnings

In the first quarter, Jagged Peak Energy’s revenue rose ~ 231% YoY (year-over-year) to ~$129 million from ~$39 million, and its adjusted profit rose ~136% YoY to ~$26 million from ~$11 million. Its adjusted profit per share rose YoY to $0.12 from $0.05.

In fiscal 2017, JAG reported EPS of $0.26. Based on JAG’s June 12 closing price of $11.79, its TTM (trailing-12-month) PE ratio is ~45x, suggesting it is expensive. This valuation may be why its stock price has fallen in the last five months.

In fiscal 2018, analysts expect JAG to report EPS of $0.51. Based on JAG’s June 12 closing price of $11.79, its forward PE ratio is ~23x, which is also slightly on the higher side. In the first quarter, JAG’s EBITDA margin narrowed to ~20%, a substantial contraction from its ~70% margin in Q4 2017 and ~50% margin in Q1 2017. Next, we’ll analyze Laredo Petroleum’s (LPI) year-to-date performance and fundamental metrics.

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