How Baytex Energy Lost 12% Last Month

Baytex Energy (TSX:BTE) stock fell 12% last month.

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Baytex Energy (TSX:BTE) stock declined from $5.36 to $4.72 over the last 30 days, for a roughly 12% decline in the span of a month. The decline was fairly unusual because BTE stock has been in an up-trend for the better part of five years. In 2020, the stock bottomed at $0.40. Since then, it has gained an impressive 1,080%, a market-beating return by any stretch of the imagination. It’s therefore worth exploring why the stock performed less well in May.

Oil prices

The biggest reason for Baytex Energy’s price decline over the last 30 days was a corresponding decline in the price of oil. 30 days ago, oil went for $84. At the time of this writing (Sunday evening), it was quoted at $77.89. That’s a 7.4% decline. Now, Baytex’s stock price declined more in this period than the price of oil did. You might think that irrational or a sign of BTE being oversold, but it might be an appropriate market response.

A company’s profit is the amount of revenue left after all expenses are “cleared.” Because profit has to clear this “expense hurdle,” it swings more than revenue does, whether revenue moves up or down. If you have $6 in revenue and $1 in profit, then a 16.7% decline in revenue produces a 100% decline in profit — indeed, a swing from positive profits to mere breakeven status!

If investors think that BTE’s profits are worth 12% less than they were a month ago with oil at $84, they may well be right. A 7% decline in a commodity price can cause a far greater than 7% impact on a commodity producer’s profits. So, BTE’s price decline in the last month was arguably the expected result of oil price fluctuations in the same period.

Where are oil prices headed?

A very worthwhile piece of information for BTE investors to have is the future price of oil. By “future price,” I mean the price in the future, not the price implied by the futures market — the two aren’t always the same. Such information would probably allow you to predict BTE’s price trajectory. However, predicting commodity prices isn’t easy, as they produce no cash flows, and their supply is heavily influenced by international politics, which is inherently unpredictable.

However, it is known that top investors like Warren Buffett and Carl Icahn are currently betting on high oil prices. You could argue that the “smart money” factor points to higher oil prices in the future.

Baytex’s earnings

One factor that may also explain BTE’s performance over the last month is its earnings. The company put out a release that beat on revenue but missed on earnings per share (EPS). Although the company’s revenue growth was high at 67% year over year, it had negative earnings. The downward price momentum could have been a reaction to the negative earnings. However, operating cash flows doubled, and the company started paying its first dividend in eight years just over a year ago. On the whole, it’s hardly game over for Baytex Energy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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