Is U.S. Energy Stock a Winner in the Oil & Gas Exploration & Production Industry?

NASDAQ: USEG | U.S. Energy Corp. News, Ratings, and Charts

USEG – The energy sector has garnered massive investor attention amid skyrocketing oil and gas prices, which has helped U.S. Energy’s (USEG) stock to gain more than 100% in price this year. However, given the volatility in the oil market lately, and USEG’s stretched valuation, will the stock continue to advance? Read on to learn our view.

Independent energy company U.S. Energy Corp. (USEG) in Houston, Tex., focuses on acquiring, exploring, and developing oil and natural gas properties in the United States. It holds interests in various oil and gas properties in the Williston Basin in North Dakota, the Permian Basin in New Mexico, the Powder River Basin in Wyoming, and the Gulf Coast of Texas.

USEG shares have gained 104.9% in price year-to-date. The stock has gained 95.9% over the past month to close yesterday’s trading session at $6.70. Retail investors have been piling into energy stocks as oil and gas prices have rallied, helping USEG to deliver solid returns. U.S. gasoline prices rose to a record high last week, as Russia’s invasion of Ukraine fueled worries amid an already tight market. Furthermore, President Biden’s announcement of a U.S. ban on Russian oil imports added to concerns. 

However, oil markets have been volatile lately, with the Brent crude futures rising to $139.13 per barrel last Monday, its highest price 2008, but then plummeting to as low as $105.60 per barrel on Wednesday. And U.S. gasoline prices at the pump edged lower over the weekend, falling for the second straight day on Sunday to $4.325 per gallon, below the record $4.331 it hit on Friday.

Here is what could shape USEG’s performance in the near term:

Stretched Valuation

In terms of trailing-12-month EV/Sales, USEG is currently trading at 32.46x, which is 1,074% higher than the 2.76x industry average. Also, its 424.95 trailing-12-month EV/EBITDA ratio  is 4,328% higher than the 9.60 industry average, while its 5.17x trailing-12-month Price/Sales is 188.9% higher than the 1.79x industry average.

Mixed Profitability

USEG’s 57.88% gross profit margin and Capex/Sales of 51.06% are 36.3% and 487.9% higher than the industry averages of 42.47% and 8.68%, respectively.

However, its net income margin and levered FCF margin of negative 20.86% and 40.00%, respectively, are substantially lower than the 6.61% and 8.28% industry averages. Furthermore, USEG’s ROE, ROA, and ROTC of negative 7.58%, 6.01%, and 0.81%, respectively, compare with the industry averages of 8.90%, 2.92%, and 4.42%..

Solid Improvement in Bottom Line

For its fiscal third quarter, ended September 30, USEG’s total revenues increased 344.9% year-over-year to $1.78 million. Also, its operating income came in at $228,000, up substantially from its negative $1.76 million year-ago value, The company’s net income and net income per share came in at $81,000and $0.02, respectively, compared to their prior-year quarter’s net loss and net loss per share of $1.82 million and $1.30, respectively.

POWR Ratings Reflect Uncertain Prospects

USEG has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of F for Value, consistent with its lofty valuation.

USEG has a C grade for Quality, in sync with its mixed profitability.

Among  the 87 stocks in the Energy – Oil & Gas industry, USEG is ranked #74.

Beyond what I have stated above, one can also view USEG’s grades for Sentiments, Growth, Momentum, and Stability here.

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

Bottom Line

Bullish sentiments surrounding the oil and gas sector have helped USEG witness solid gains this year. However, the oil market has been highly volatile lately as traders assess potential improvements to the supply outlook. In addition, Wall Street analysts expect a 25.4% downside in USEG in the near term. Thus, considering its negative ROE and stretched valuation, USEG looks less attractive than its peers. So, we think  it would be wise to wait for a better entry point in the stock.

How Does U.S. Energy Corp. (USEG) Stack Up Against its Peers?

While USEG has an overall POWR Rating of C, one might want to consider taking a look at its industry peers, California Resources Corporation (CRC), Baytex Energy Corp. (BTEGF), and VAALCO Energy, Inc. (EGY), which have an A (Strong Buy) rating.

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USEG shares were trading at $6.17 per share on Monday morning, down $0.53 (-7.91%). Year-to-date, USEG has gained 88.69%, versus a -11.29% rise in the benchmark S&P 500 index during the same period.


About the Author: Subhasree Kar


Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
USEGGet RatingGet RatingGet Rating
CRCGet RatingGet RatingGet Rating
BTEGFGet RatingGet RatingGet Rating
EGYGet RatingGet RatingGet Rating

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