Matador Resources Company (MTDR - Get Rating) is an independent energy company that explores crude oil and natural gas assets. The company recently reported impressive fiscal fourth-quarter results, beating Wall Street estimates. Its revenue and adjusted EPS for the quarter came in at $566 million and $1.26, which beat the estimates by 32.2% and 23.5%, respectively. The stock has gained 26.5% over the past month to close yesterday’s trading session at $53.24.

MTDR is currently trading near its 52-week high of $57.69, which it hit on April 4, 2021, due to a recent surge in oil prices on account of rising geopolitical tensions. However, the company expects to face additional service cost inflation, which might increase costs to drill, complete, equip and operate wells. Moreover, the rapidly spreading new variants of coronavirus remain a concern as countries consider new lockdown measures. So, MTDR’s near-term prospects look uncertain.

Here’s what could influence MTDR’s performance in the upcoming months:

High Profitability

In terms of trailing-12-month CAPEX/Sales, MTDR’s 42.34% is 404.2% higher than the industry average of 8.40%. Likewise, its trailing-12-month net income margin of 33.77% is 361.3% higher than the industry average of 7.32%. Moreover, the stock’s trailing-12-month ROTA of 13.72% is 366.4% higher than the industry average of 2.94%.

Stretched Valuation

In terms of forward EV/S, MTDR’s 3.19x is 42.1% higher than the industry average of 2.24x. Likewise, its forward P/S of 2.50x is 61.3% higher than the industry average of 1.55x.

POWR Ratings Don’t Indicate Enough Upside

MTDR has an overall rating of C, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. MTDR has a C grade for Value, in sync with its higher-than-industry valuation ratios.

The stock has a C grade for Growth and Sentiment. This is justified as analysts expect its EPS to decline 8.1% in fiscal 2023. In addition, MTDR has a D grade for Stability, consistent with its beta of 4.05.

MTDR is ranked #38 out of 96 stocks in the Energy – Oil & Gas industry. Click here to access MTDR’s ratings for Momentum and Quality.

Bottom Line

MTDR’s near-term prospects look uncertain due to concerns over rising COVID-19 cases in several states and increasing inflation in the costs of certain oilfield services. So, the stock looks overvalued at the current price level, and it could be wise to wait for a better entry point in the stock.

How Does Matador Resources (MTDR) Stack Up Against its Peers?

While MTDR has an overall POWR Rating of C, you might want to consider investing in the following Energy – Oil & Gas stocks with an A (Strong Buy) rating: Baytex Energy Corp. (BTEGF - Get Rating), California Resources Corporation (CRC - Get Rating), and W&T Offshore, Inc. (WTI - Get Rating).

MTDR shares were unchanged in after-hours trading Thursday. Year-to-date, MTDR has gained 45.46%, versus a -5.22% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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