WPX Energy Inc (WPX): How Is This Company Trading Under Tangible Book Value?

The oil and gas sector has been gaining momentum since June 2012. Rising commodity prices along with macro factors led Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) to increase capitalization by 17.41% and 29.78% with 52-week price ranges of $79.78 – 93.67 and $98.17 – 127.40 respectively. In light of a massive revenue loss in 2012, WPX has done well compared to its competitors, as its stock climbed 50.46% in the last 12 months and is currently trading at $19.92 with a 52-week price range of $14.03 – 21.11. It is important to note that Exxon Mobil and Chevron have P/E ratios of 9.28 and 9.11 in contrast to the industry average P/E of 12.12. However, WPX has been expanding quickly since 2012, and their ROE was -5.94%. As a result their P/E ratio is currently negative.

Conclusion

As a smaller company, WPX Energy Inc (NYSE:WPX) is in a better position compared to larger competitors. When oil prices were falling, it could effectively cut back costs and production. Declining commodity prices always make smaller companies more competitive as production slows down and larger players can’t exploit the economies of scale, which act in their favor during growth periods. Since June 2012, WPX has been gaining momentum, and the company is trading way below its tangible book value with a considerable margin of safety as explained above. As natural gas consumption is likely to go up, WPX is in a unique position with upside potential that gives deep value investors a prospective opportunity.

The article How Is This Company Trading Under Tangible Book Value? originally appeared on Fool.com and is written by Mike Thiessen.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Chevron. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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