Energy Industry Research & Analysis
Energy Industry Research Report
Energy Industry Profile _ (edit/improve) The energy industry represents a variety of types of companies structured around meeting customer's energy needs. This includes procuring oil and natural gas resources, refining these assets, as well as transmitting these resources to customers. The energy industry includes oil, gas, and other resources. Exploration and extraction are often lucrative aspects of the industry and center around procurement of these natural resources. Refinement centers around formatting these resources for consumption, while delivery involves transmitting these resources to the ultimate consumer. Often transmittal of energy is performed by pipeline companies, often structured as master limited partnerships in order to maximize the dividends paid to customers. The energy industry has several massive companies that hold the majority of the market capitalization of the industry, but also includes numerous decentralized companies that perform certain riskier aspects of the energy industry, including exploration, storage and transportation. The energy industry is dependent on commodity costs.
Energy Industry Analysis: The energy industry includes companies whose sales derive from the production and sale of energy related products and services such as the extraction, manufacturing, refining, and distribution of energy. Energy Trading Strategy: Energy investments tend to be very sensitive to commodity prices. Speculation and market manipulation by governments affect the energy market, therefore, cautiously invest in companies with significant potential. Upward sloping stock charts and financial news may indicate a selling opportunity while the opposite means that stocks are becoming undervalued.
Industry Analysis evaluates the major industry characteristics that affect investments. Company specific factors drive the performance of individual companies, but macro-economic factors can affect the performance, stock prices, growth rates, and chart movements of any stock, currency, or commodity. Review industry research before trading.
Warren Buffett Quote: "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." No matter the quality of your business, industry economics is an important factor in any value investing decision.
|Stock Research Rating||Buy||…|
|Potential (safety margin)||64%||High ~ Good for investors|
|WACC Discount Rate||8%||Low ~ Good for investors|
|Revenue EV Multiple||1.1x||Low ~ Good for investors|
|EBITDA EV Multiple||4.6x||Low ~ Good for investors|
|EBIT EV Multiple||5.5x||Low ~ Good for investors|
|Cash Flow EV Multiple||14.0x||…|
|Book Value EV Multiple||1.1x||Low ~ Good for investors|
|Discounted Cash Flow (DCF)||Ratios||Notes|
|Revenue Growth||21%||High ~ Good for investors|
|EBITDA Margin||28%||High ~ Good for investors|
|EBIT Margin||21%||High ~ Good for investors|
|Cash Flow Margin||5%||…|
|Debt-Equity Ratio||22%||Low ~ Good for investors|
|WACC Discount Rate||Rates||Notes|
|Risk Free Rate||4%||Low ~ Good for Investors|
|Cost of Debt||7%||Low ~ Good for Investors|
|Equity Risk Premium||5%||…|
|Debt Required Return of Debt||4%||Low ~ Good for Investors|
|Required Return of Equity||9%||…|
1 WikiWealth only uses the largest 30 companies in each industry for the basis of these financial measures. Each statistic is the market weighted average of the 30 companies.
2 Investment potential (margin of safety) is a weighted average of the discounted cash flow (DCF), the enterprise value (EV) market multiple, and the Warren Buffett investment methods.
Description: The energy stocks includes companies whose sales derive from the production and sale of energy related products and services such as the extraction, manufacturing, refining, and distribution of energy (see full energy description: competitors, industry ratios, best stocks, market leaders, aggregate SWOT Analysis, and streaming industry news).
Profit Analysis: The best way to profit from energy stock investments is to find the most undervalued investments (Wall Street and Main Street buy ratings) during economic recessions. Those investments should be undervalued (see Wall Street on left side), and have high Main Street Common Sense investment ratings (see Main Street on right side). When an economic recovery occurs, energy stocks tend to outperform the general stock market, because general consumer demand increases.
Energy stocks are most sensitive to commodity prices, which are an indicator of future energy demand. Energy commodity speculators try to predict the demand and supply of commodities, but their generally set prices too high during economic expansions and too low during economic recessions. Therefore, the best time to make energy stock investments is during economic recessions. The best time to sell energy stocks is in the late stages of economic expansions, when energy stocks and commodity prices are above their fair prices. Expensive (overvalued) stocks with low Main Street Common Sense ratings should be sold at any time to invest in better stocks. Two buys ratings are the best and two sell ratings are the worst possible stock investments.
Trading Strategy: The energy stocks tends to be very sensitive to economic changes. Demand for energy is inelastic, so it does not easily change with changes in price. Therefore, changes in supply have a large impact on the price of fuel. Some sectors of the energy stocks require large investments over an extended period of time, which causes issues with adjusting energy supply with demand, so prices tend to be volatile. Energy stock prices tend to move in line with energy commodity prices. During economic recessions, consumers may decrease expenses slightly, but the majority of energy costs are not flexible, because they are needed for everyday living.
Since energy needs are inflexible, stock prices are less influenced by changed in the economy. However, commodity prices such as oil or natural gas have a direct impact on energy stock investments. Changes in commodity prices are a result of changes in supply and demand. Recently, oil prices increased, because of the demand for oil from emerging markets. Unfortunately, the global recession decreased growth estimates and demand until oil prices fell from 160 dollars a barrel to 35 dollars a barrel.
Part of oil price changes are do to speculation. When speculators increase the price of oil, many alternative sources of fuel become profitable. When companies make investments in these alternative sources of fuel, supply increases until energy prices start to fall. If prices fall too far, then the alternative fuel sources become less profitable and shutdown, which decreases demand. Stock prices rise and fall with energy commodity prices.