HighPeak Energy has been on fire lately. In the past six months alone, the company’s stock price has rocketed 59.6%, reaching $10.68 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy HighPeak Energy, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why is HighPeak Energy not exciting?
Despite the momentum, we’re cautious about HighPeak Energy. Here are three reasons we avoid HPK, plus one stock we’d rather own.
1. Fewer distribution channels limit its ceiling
The scale of a company’s revenue base is an important lens through which to view the topline, as it signals whether a producer has gone from a vulnerable commodity taker into a durable operating platform. Larger producers generate revenue across many wells, pads, takeaway routes, and geographies rather than relying on a single field or drilling program.
HighPeak Energy’s $893.8 million of revenue in the last year is pretty small for the industry, suggesting the company hasn’t hit a level of diversification where investors can sleep easy at night.
2. Shrinking EBITDA margin
Adjusted EBITDA margin strips out accounting distortions tied to depletion and historical drilling spend, providing a clearer view of the cash-generating power of the underlying asset base before financing and reinvestment decisions.
Looking at the trend in its profitability, HighPeak Energy’s EBITDA margin decreased by 18.5 percentage points over the last year. Even though its historical margin was healthy, shareholders will want to see HighPeak Energy become more profitable in the future. Its EBITDA margin for the trailing 12 months was 64%.
3. Cash burn ignites concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
While HighPeak Energy posted positive free cash flow this quarter, the broader story hasn’t been so clean. HighPeak Energy’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 25.6%, meaning it lit $25.56 of cash on fire for every $100 in revenue.
Final judgment
HighPeak Energy isn’t a terrible business, but it doesn’t pass our bar. Following the recent rally, the stock trades at 44.7× forward P/E (or $10.68 per share). This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward a top digital advertising platform riding the creator economy.
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