While the redrawing of the global energy map and shifting geopolitical inclinations in the Middle East since the beginning of the conflict in Ukraine has seen the U.S. go from “(being) a very domestically focused market into an international powerhouse,” Camber Energy, Inc. (CEI) has seen its share price tumble from $45 to less than $2.

While U.S. energy producers have been struggling to reinvest their windfall gains at healthy terms and hence are resorting to generous returns of capital to existing shareholders in the form of dividends, CEI has been struggling to turn a profit, and its struggles seem far from over.

CEI operates as an independent oil and natural gas company. It acquires, develops, and sells crude oil, natural gas, and natural gas liquids from various known productive geological formations in Kansas, Louisiana. It provides energy and power solutions to industrial and commercial users.

The stock has plummeted 26.7% over the past month and 90% over the past six months to close the last trading session at $1.32.

Let’s closely examine CEI’s fundamentals:

Dismal Financial Performance

The company is yet to release its fourth-quarter earnings. For the quarter ended September 30, CEI’s loss from operations widened 32.8% year-over-year to $1.22 million.

During the same period, its net loss attributable to common shareholders came in at $23.28 million and $0.05 per share. The company’s total assets stood at $37.52 million as of September 30, 2022, compared to $46.40 million as of December 31, 2021.

Potential Red Flags?

On November 11, CEI disclosed that it had received a letter from NYSE on November 7. The exchange has notified the company that its securities have been selling for a substantial period of time at a low price per share, which the Exchange determined to be a 30-day trading average price of less than $0.20 per share.

Therefore, CEI was advised to demonstrate sustained price improvement or effect a reverse stock split no later than May 7, 2023, to remain listed at NYSE.

In response, CEI effected a one-for-fifty reverse stock split of its issued and outstanding shares of common stock on December 21 to regain compliance with continued listing standards, as confirmed by NYSE’s letter received on January 3, 2023.

While this quick fix to avoid the delisting threat artificially inflating the share price, it does little to assuage concerns regarding factors that led to such a precipitous decline in its stock price while the rest of the U.S. energy sector has been booming.

The ideal solution would have been to deliver and convey sustained value to current and prospective shareholders in the form of dividends or share repurchases akin to its industry peers. However, with a reported net loss, that seems to be off the table in the foreseeable future.

Moreover, no fractional shares were issued due to the Reverse Stock Split, and no cash or other consideration would be paid. Instead, fractional shares resulting from the Reverse Stock Split were rounded up to the nearest whole share on a per-shareholder basis.

But a net loss on its books and a relatively-paltry cash balance of $2.46 has not prevented the company from being willing to splurge $69 million to acquire a full interest in undisclosed oil companies and an undisclosed sum to fully acquire an undisclosed and yet-to-be-operational renewable diesel facility.

Stretched Valuation

CEI’s trailing-12-month EV/Sales multiple of 99.70 is exorbitant compared to the industry average of 1.56.

Despite the slump in its stock price, CEI’s forward Price/Sales multiple of 15.96 compares unfavorably to the industry average of 1.07.

Given the bleak outlook and absence of a clear path to profitability, such a frothy valuation increases the downside risk for the stock.

POWR Ratings Reflect Weakness

CEI’s weak fundamentals and bleak outlook are reflected in its POWR Ratings. The stock has an overall rating of F, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CEI also has an F grade for Value, consistent with its stretched valuation. While indicating its chronic underperformance compared to the broader market, the stock’s 60-month beta of negative 1.24 and a vast spread between its 52-week high and low prices of $54.50 and $1.23, respectively, are also responsible for its D grade for Stability.

CEI has a D grade for Quality and Sentiment, in sync with its ROTA of negative 26.7%, which compares unfavorably with the industry average of 7.8% and its bleak outlook.

Unsurprisingly, CEI ranks #88 of 90 stocks in the Energy – Oil & Gas industry.

Click here for additional POWR Ratings for CEI’s Growth and Momentum.

Bottom Line

Given the bleak outlook and questionable standards of corporate governance and fiscal discipline, it would be wise to give the stock a wide berth and jettison it in time to prevent further erosion of your money.

Stocks to consider instead of Camber Energy, Inc. (CEI)

Given the meltdown in stock price and its uncertain prospects, the odds of Camber Energy outperforming in the weeks and months ahead are greatly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks from the Energy – Oil & Gas industry instead:

Marathon Petroleum Corporation (MPC)

Valero Energy Corporation (VLO)

PrimeEnergy Resources Corporation (PNRG)

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CEI shares were trading at $1.27 per share on Friday afternoon, down $0.05 (-4.08%). Year-to-date, CEI has declined -37.13%, versus a 2.18% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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