Weatherford has been on fire lately. In the past six months alone, the company’s stock price has rocketed 60.1%, reaching $101.38 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Weatherford, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Weatherford Not Exciting?
Despite the momentum, we don't have much confidence in Weatherford. Here are two reasons why WFRD doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Cyclical industries such as Energy can make mediocre companies look great for a time, but a long-term view reveals which businesses can actually withstand and adapt to changing conditions. Unfortunately, Weatherford’s 5.9% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the energy upstream and integrated energy sector.
2. Low Gross Margin Reveals Weak Structural Profitability
In a single quarter or year, gross margins in the sector can swing wildly due to commodity prices, hedging, or changes in labor costs. Over a multi-year period across different points in the cycle, gross margin differences can signal whether a company is a structurally-advantaged producer (“rock” quality, takeaway, operating costs) or not.
Weatherford, which averaged 31.5% gross margin over the last five years, exhibiting bottom-tier unit economics in the sector. It means the company will struggle at higher commodity prices than peers with better gross margins. 
Final Judgment
Weatherford isn’t a terrible business, but it doesn’t pass our quality test. After the recent rally, the stock trades at 19× forward P/E (or $101.38 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
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