What a time it’s been for Nabors Industries. In the past six months alone, the company’s stock price has increased by a massive 68.7%, reaching $87.50 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Nabors Industries, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Nabors Industries Not Exciting?
Despite the momentum, we’re cautious about Nabors Industries. Here are two reasons we avoid NBR, plus one stock we’d rather own.
1. Low Gross Margin Reveals Weak Structural Profitability
In any given year, energy gross margins are heavily influenced by prices, hedging, and cost inflation, but over a full cycle these gross margins reveal which producers are structurally advantaged through superior “rock” quality, infrastructure access, and cost position.
Nabors Industries, which averaged 39% gross margin over the last five years, exhibits poor unit economics in the sector. It means the company will struggle more at lower commodity prices than peers with better gross margins.
2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
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.
Nabors Industries has shown weak cash profitability relative to peers over the last five years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 2.3%, below what we’d expect for an upstream and integrated energy business.
Final Judgment
Nabors Industries isn’t a terrible business, but it doesn’t pass our quality test. After the recent surge, the stock trades at 3× forward EV-to-EBITDA (or $87.50 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We’re pretty confident there are more exciting stocks to buy at the moment. Let us point you toward the most entrenched endpoint security platform on the market.
Stocks We Like More Than Nabors Industries
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