Range Resources has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 9.1% to $42.91 per share while the index has gained 11.6%.
Is now the time to buy Range Resources, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Range Resources Not Exciting?
We don't have much confidence in Range Resources. Here are two reasons you should be careful with RRC and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
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. Unfortunately, Range Resources’s 9.6% annualized revenue growth over the last five years was mediocre. This was below our standard for the energy upstream and integrated energy sector.
2. Shrinking EBITDA Margin
Adjusted EBITDA margin is an important measure of profitability for the sector and accounts for the gross margins and operating costs mentioned previously. Unlike operating margin, it is not distorted by accounting conventions around reserves, drilling costs, and assumptions on commodity consumption from the well or basin. Adjusted EBITDA highlights the economic reality of how much cash the rock produces before the capital structure (debt service) and the drilling budget (capex) are considered.
Analyzing the trend in its profitability, Range Resources’s EBITDA margin decreased by 1 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 50.5%.
Final Judgment
Range Resources’s business quality ultimately falls short of our standards. That said, the stock currently trades at 10.3× forward P/E (or $42.91 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of our top digital advertising picks.
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