Core Laboratories’s stock price has taken a beating over the past six months, shedding 33.5% of its value and falling to $12.46 per share. This might have investors contemplating their next move.
Is there a buying opportunity in Core Laboratories, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Core Laboratories Will Underperform?
Even with the cheaper entry price, we don’t have much confidence in Core Laboratories. Here are three reasons we avoid CLB, plus one 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. Over the last five years, Core Laboratories grew its sales at a weak 3.1% compounded annual growth rate. This fell short of our benchmark for the energy upstream and integrated energy sector.
2. Fewer Distribution Channels Limit Its Ceiling
The size of the revenue base is a way to assess topline, and it tells an investor whether an Energy producer has crossed the line between being a more vulnerable commodity taker and a durable operating platform. Scaled businesses tend to produce and generate revenue from many wells, pads, takeaway routes, and geographies, not just a single field or drilling program.
Core Laboratories’s $519.2 million of revenue in the last year is pretty small for the industry, suggesting the company is a subscale business in an industry where scale matters.
3. Low Gross Margin Reveals Weak Structural Profitability
While energy gross margins can be distorted by commodity prices, hedging, and short-term cost swings, sustained margins across a full cycle reflect a producer’s underlying asset quality, infrastructure position, and cost structure.
Core Laboratories, which averaged 20.3% gross margin over the last five years, exhibited 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
We see the value of companies helping consumers, but in the case of Core Laboratories, we’re out. After the recent drawdown, the stock trades at 19.5× forward P/E (or $12.46 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward the most dominant software business in the world.
Stocks We Would Buy Instead of Core Laboratories
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