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Is Halcon Resources a Great Stock for Value Investors?

Zacks

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Halcon Resources HK stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.


On this front, Halcon Resources has a trailing twelve months PE ratio of 0.44, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 20.19. If we focus on the stock’s long-term PE trend, the current level puts Halcon Resources’ current PE ratio below its midpoint over the past five years, with the number being somewhat stable over the past few months.

However, the stock’s PE compares unfavorably with the Zacks classified Computer & Technology sector’s trailing twelve months PE ratio, which stands at -120.51.

We should also point out that Halcon Resources has a forward PE ratio (price relative to this year’s earnings) of 12.92, which is much higher than the current level. So it is fair to expect an increase in the company’s share price in the near term.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Halcon Resources has a P/S ratio of about 0.99. This is significantly lower than the S&P 500 average, which comes in at 3.13 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.

If anything, HK is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Halcon Resources currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Halcon Resources a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the P/CF ratio of Halcon Resources (another great indicator of value) comes in at 2.90, which is lower than the industry average of 3.94. Clearly, HK is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Halcon Resources might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘F’. This gives HK a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been mixed. The current quarter has seen one estimate go higher in the past sixty days compared to one lower, while the full year estimate has seen one up and two down in the same time period.

This has had just a small impact on the consensus estimate though as the current quarter consensus remained stable in the past two months, while the full year estimate has inched lower by 3.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.

Bottom Line

Halcon Resources is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among Bottom 22% of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Oil and Gas – Exploration and Production – United States industry has clearly underperformed the broader market, as you can see below:

So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

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