Oil and gas company Houston American Energy Corp. (HUSA - Get Rating) operates as an independent energy firm that engages in acquiring, exploring, developing, and producing natural gas, crude oil, and condensate. The company’s oil and gas properties are primarily located in the Texas Permian Basin. Texas and Louisiana Gulf Coast Region, and Colombia.

HUSA’s stock was catapulted to astronomical heights in March, seemingly due to the ‘meme-stock trade.’ The stock attained its 52-week high of $16.61 on March 7. The stock might be a sound short-term gain bet.

Over the past year, HUSA’s stock has gained 130.1% to close Friday’s trading session at $3.75. It has gained 162.2% year-to-date. However, the stock has declined 36.1% over the past month and 25.2% over the past five days.

Stretched Valuations

In terms of its trailing 12-months EV/Sales, HUSA is trading at 24.51x, 778.8% higher than the industry average of 2.79x. The stock’s trailing 12-month Price/Sales multiple of 27.27 is 1,427% higher than the industry average of 1.79. In terms of its trailing 12-month Price/Book, the stock is trading at 3.61x, 79.9% higher than the industry average of 2.01.

Negative Profit Margins

HUSA’s trailing 12-month EBIT margin and EBITDA margin of a negative 77.75% and 58.96% are substantially lower than their respective industry averages of 11.51% and 24.09%. Its trailing 12-month net income margin and levered FCF margin of a negative 76.80% and 18.54% compared with the industry averages of 6.64% and 8.17%.

Moreover, its trailing 12-month ROE, ROTC, and ROA of a negative 12.64%, 7.50%, and 9.52% are significantly lower than their respective industry averages of 8.84%, 4.65%, and 2.94%.

Bleak Trailing 12-Month Financials

HUSA’s trailing 12-month Net income, operating income, and EPS came in at a negative $1.02 million, $1.03 million, and $0.11. Its trailing 12-month net operating cash flow and levered free cash flow came in at a negative $680.69 thousand and $246.58 thousand.

Moreover, HUSA’s revenue has declined at a 17.4% CAGR over the past three years.

POWR Ratings Reflect Bleak Prospects

HUSA’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

HUSA has a Value grade of F, consistent with its stretched valuations. The stock has a D grade for Quality, in sync with its negative profit margins.

In the 97-stock Energy – Oil & Gas industry, it is ranked #95.

Click here to see the additional POWR Ratings for HUSA (Growth, Momentum, Stability, and Sentiment).

View all the top stocks in the Energy – Oil & Gas industry here.

Bottom Line

Although up significantly this year, the company does not seem to possess solid fundamentals to sustain its gains. Moreover, given the high competitiveness in the oil drilling business, HUSA looks less attractive than its peers. On top of it, the creeping volatility in the oil market due to the Russia-Ukraine crisis is concerning. Also, considering HUSA’s negative ROE, I think it might be best to avoid the stock for now.

How Does Houston American Energy Corp. (HUSA) Stack Up Against its Peers?

While HUSA has an overall POWR Rating of D, one might consider looking at its industry peers, Unit Corporation (UNTC - Get Rating), which has an overall A (Strong Buy) rating, and Athabasca Oil Corporation (ATHOF - Get Rating) and W&T Offshore, Inc. (WTI - Get Rating), which have an overall B (Buy) rating.

HUSA shares were trading at $3.57 per share on Monday afternoon, down $0.18 (-4.80%). Year-to-date, HUSA has gained 149.65%, versus a -9.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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