Over the past six months, California Resources’s stock price fell to $53.17. Shareholders have lost 18.6% of their capital, which is disappointing considering the S&P 500 has climbed by 18.4%. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Following the pullback, is now the time to buy CRC? Find out in our full research report, it’s free.
Why Does California Resources Spark Debate?
Operating some of California's most productive oil fields including Elk Hills and Belridge, California Resources (NYSE: CRC) explores for and produces crude oil, natural gas, and natural gas liquids from fields across California.
Two Things to Like:
1. Long-Term Revenue Growth Shows Strong Momentum
Cyclical industries such as Energy can make mediocre companies look great for a time, but a long-term view reveals which businesses can actually withstand and adapt to changing conditions. Luckily, California Resources’s sales grew at a solid 15% compounded annual growth rate over the last five years. Its growth surpassed the average energy upstream and integrated energy company and shows its offerings resonate with customers.
2. Elite Gross Margin Powers Best-In-Class Business Model
In a single quarter or year, gross margins in the sector can swing wildly due to commodity prices, hedging, or changes in labor costs. Over a multi-year period across different points in the cycle, gross margin differences can signal whether a company is a structurally-advantaged producer (“rock” quality, takeaway, operating costs) or not.
California Resources, which averaged 57.5% gross margin over the last five years, exhibits good unit economics in the sector. It means the company will remain profitable at lower commodity prices than peers with inferior gross margins and serves as an encouraging starting point for ultimate operating profits and free cash flow generation.
One Reason to Be Careful:
Shrinking EBITDA Margin
Adjusted EBITDA margin captures the true operating profitability of an energy producer by removing accounting noise around depletion and capitalized drilling costs. It reveals how much cash the asset base generates before capital structure and reinvestment requirements shape reported earnings.
Analyzing the trend in its profitability, California Resources’s EBITDA margin decreased by 7.6 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its EBITDA margin for the trailing 12 months was 32.3%.
Final Judgment
California Resources has huge potential even though it has some open questions. With the recent decline, the stock trades at 12.5× forward P/E (or $53.17 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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