Will Range Resources Return to Earth in 2014?
Range Resources Corp. (NYSE: RRC) is an independent oil and gas company that is trading at valuations far above those for others in the sector, such as Anadarko Petroleum (NYSE: APC) and Chesapeake Energy (NYSE: CHK).
For investors looking to short a stock, Range Resources Corp. certainly looks to be overpriced.
For oil and natural gas companies, it is all a matter of reserves.
At present, Range Resources is trading at more than five times its asset value. Anadarko Petroleum is at 1.76 times the book value of its holdings. For Chesapeake Energy, its book value is 1.38. Range Resources has a long way to fall to bring its share price in line with others in its sector.
Its high debt level also threatens the current price level of the stock.
The debt-to-equity ratio for Range Resources Corp. is 1.28. That means it required $1.28 in borrowing to produce each dollar of equity. For Chesapeake Energy, the debt-to-equity ratio is 0.97. It is 0.61 for Anadarko Petroleum.
Range Resources has been performing better, with strong earnings growth projected for the future. But that also looks so much better due to the negative earnings growth of 40 percent for the past five years. The present price-to-earnings ratio is 97.01. The forward price-to-earnings ratio is 46.90.
The price-to-earnings growth ratio is also very high.
Legendary investor Peter Lynch considers this to be the most important financial indicator. It should be one for a company that is fairly valued. The lower the better: for Range Resources, it is 3.30.
Obviously, valuations like these draw the attention of the short community.
A short float of five percent is considered to be troubling for a company. For Range Resources, the short float is nearly seven percent. The share price for Range Resources is up more than 33 percent for 2013. For 2014, that could give it much more to fall.
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.