Is Trending Stock Earthstone Energy, Inc. (ESTE) a buy it now?
earth stone energy (ESTE) has been one of the most searched stocks on Zacks.com lately. So, you might want to consider some of the facts that could shape the stock’s performance in the short term.
Shares of this oil and gas company have returned -21.7% over the past month compared to the -8.2% change in the Zacks S&P 500 composite. Industry Zacks Oil and Gas – Exploration and Production – United States, which owns Earthstone Energy, lost 13.5% over the period. Now the key question is: where could the stock be heading in the near term?
Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.
Revisions to earnings estimates
At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.
Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.
For the current quarter, Earthstone Energy is expected to post earnings of $1.73 per share, indicating a change of +394.3% from the prior year quarter. The Zacks consensus estimate has remained unchanged for the past 30 days.
The current year earnings consensus estimate of $5.85 indicates a year-over-year change of +368%. This estimate has changed by +14.4% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $7.58 indicates a change of +29.6% from what Earthstone Energy is expected to report a year ago. Over the past month, the estimate has changed by +25.6%.
With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. . Due to the magnitude of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Earthstone Energy is ranked Zacks Rank #1 (Strong Buy).
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Revenue Growth Forecasts
While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.
For Earthstone Energy, the current quarter sales consensus estimate of $397.82 million indicates a year-over-year change of +260.4%. For the current and future years, the estimates of $1.44 billion and $1.82 billion indicate variations of +243.2% and +26.3%, respectively.
Latest reported results and history of surprises
Earthstone Energy reported revenue of $472.55 million last quarter, representing a year-over-year change of +427%. EPS of $1.29 for the same period versus $0.26 a year ago.
Compared to Zacks’ consensus estimate of $364.98 million, reported revenue is a surprise of +29.48%. Surprise EPS was +4.88%.
The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus earnings estimates every time during this period.
Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
While comparing the current values of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , along with its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of the reasonableness of the stock price .
As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on.), which is useful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.
Earthstone Energy is rated B on this front, indicating that it is trading at a discount to its peers. Click here to see values for some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information on Zacks.com might help determine whether it’s worth paying attention to the market buzz surrounding Earthstone Energy. However, its Zacks No. 1 ranking suggests it could outperform the broader market in the near term.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.