Baytex Energy Corp (TSX:BTE)(NYSE:BTE) has been having a rough time this past decade. Trading at $48 in August of 2014, it sits at just $2.71 today. Obviously, long-term Baytex holders have been getting burned in the markets. But more recently, the stock has been on a rally, rising 16% in just a few days. This has some traders wondering if it’s time to take another look at Baytex stock. But is it?
To answer that question, we need to look at how Baytex has been doing as a business. We can start with revenue growth.
In Q3, Baytex earned $344 million in revenue, up 70% from a year before. This is excellent growth year-over-year, although when we look at annual revenue, the situation rapidly deteriorates. In 2014, Baytex earned about $1.5 billion in revenue, but by 2017, that was down to $1 billion. Not the best long term growth pattern, but perhaps there is a saving grace.
Unbelievably cheap (by some estimates)
Five-year earnings estimates from Thomson Reuters give Baytex an ultra-low forward P/E ratio of 6.78. This certainly looks good, but keep in mind that these estimates can be wrong. For companies with extremely spotty earnings histories, they are wrong more often than not. And when we look at Baytex’ earnings history, it begins to look like that may be the case.
Baytex has a history of occasionally squeaking out positive earnings, but very often it misses or even posts negative net income. In Q3, it managed to earn a $27 million net income, but in Q2, it posted a $58 million loss. This pattern is pretty typical for Baytex, which has been posting some strong and some weak quarters for years.
Part of the reason for Baytex’ spotty earnings may be the industry it’s in. Baytex is a natural gas exploration company, which means it’s making constant capital expenditures on new discoveries. This naturally results in dramatic upward and downward swings in earnings, as both revenues and expenses vary a lot with the company’s exploration efforts.
In my opinion, this makes Baytex less appealing as a long-term holding than a pipeline company like TransCanada Corp, which locks in dependable revenue by shipping (instead of extracting) natural gas.
As far as energy plays go, Baytex is not my favourite. In addition to the spotty revenue and earnings, there’s the simple fact that this stock has an extremely long history of going down. While it’s true that past performance doesn’t necessarily indicate future performance, a continuous seven-year losing streak usually isn’t a good thing.
The one saving grace this stock has is the potential for an unexpected “Hail Mary” success in the form of a huge natural gas discovery. But even that is undermined by the current concern over falling energy prices, so I wouldn’t bet on it.
In my opinion, Baytex Energy is no millionaire-maker.
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Fool contributor Andrew Button has no position in any of the stocks mentioned.