Envestor First Range Resources Corporation RRC

Don’t Walk On The Range, RUN, Away As Fast As You Can. ( $RRC $CHK $BHP $DVN $SWN $CLR )

Several of our articles recently have touched on the major problems natural gas producers are having and how they are impacting their financial statements. You see majors like $BHP writing off major natural gas plays and other stables like $CHK cutting back the majority of their exploration budgets. When the economics don’t make sense you do what you do. While we will contend that $RRC is a great overall company, you also have to be realistic when something is overvalued, and I mean overvalued. 

Range Resources Corporation (RRC) is a United States-focused natural gas company which recently traded at astronomical price-to-earnings multiples over 200. It is an awesome company whose earnings cumulative average growth rate is expected to top 20%. Unfortunately, even this prodigious growth just doesn’t justify its valuation multiples. When compared to its peers, it is readily apparent that investors should stay away from RRC shares at current price levels, even after considering growth projections.

Computing Future Valuations from Growth Projections

Regardless of how shiny a stock is, investors should never buy a stock because the company is fancy, disruptive, or because it is fun to read about. Media coverage, drama, the next big thing, and other distractors cannot justify paying one dollar for fifty cents.

Instead, investors should be focused on growing the value of their assets through purchasing stocks for less than what they are worth. A poor company trading at a dismal price may be an excellent trade. RRC shares are trading at the other extreme: Range Resources is a great company trading at incredibly enthusiastic valuations which should be avoided. Its metrics are provided with other independent United States-focused oil and gas companies: 

Ticker Company P/E Earnings Growth Est. P/S Sales Growth Est.
RRC Range Resources 234.0 22.6% 7.3 10.4%
CLR Continental Resources 18.8 8.0% 5.8 27.8%
SWN Southwestern Energy 17.6 15.4% 3.6 31.1%
DVN Devon Energy 10.8 7.9% 1.9 3.2%
CHK Chesapeake Energy 7.4 8.3% 1.0 9.7%

Content Sources: http://seekingalpha.com/article/787381-range-resources-coporation-valuations-more-hot-air-than-natural-gas

Photo Credit: http://gomarcellusshale.com/photo/jeff-ventura-president-coo-and?overrideMobileRedirect=1

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