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FINDING A WINNER IN FLASHPOINT - EPSN

Garrett Baldwin

 

This week in Flashpoint trader, we discussed a stock that has caught my eye:
Epsilon Energy (EPSN). This natural gas company has experienced a substantial
decline recently, with its stock now trading around its March lows. This
downturn is likely linked to a liquidity issue. 


EPSN stands out as a potential "Larry the Liquidator" type of stock. Based in
Houston, this energy company is a promising prospect, as I maintain a bullish
stance on the energy sector. Although I foresee oil prices pulling back to
approximately $65, I'm eager to invest in the current weakness of the natural
gas market. EPSN boasts an F score of nine, an impressive balance sheet, and
competent management. Furthermore, its Z score of about 5.5 suggests that the
company has settled its debts and enjoys substantial margins.


GuruFocus places EPSN's fair value at $11, but the stock trades at a mere $5.
Value companies with a negative narrative can make enticing investments,
particularly at such depressed prices. While the stock could dip to $4.53, it
might also climb to $11. No one can predict the outcome with certainty, but
exploring defensive strategies around these stocks at such low levels is worth
our consideration


Operating predominantly within Pennsylvania's Marcellus shale formation, EPSN is
an oil exploration and production company. From a long-term standpoint, the firm
offers a 5% dividend, a P/E ratio of 3.4, and an enterprise value to EBIT of
1.5. The company's tangible book value is 1.2, and its price to free cash flow
is 4.0. With an EBIT of 1.55, the figure is notably low.


Since natural gas isn't disappearing anytime soon, let's consider how to
approach trading EPSN. Currently trading at $5, the stock isn't attracting much
attention, primarily due to its relatively small size. Its market capitalization
is around $115 million, causing it to be classified as a retail stock and,
consequently, subject to pressure.


To trade EPSN, consider purchasing the stock at $4.50 when it reaches oversold
conditions. Another option is to sell the $5 put for August 18th, 2023, at
around 50 cents, locking into the stock at $4.50 and securing a dividend yield
of about 6%. Due to European supply issues, natural gas prices are expected to
rise towards the year's end.

 

TRADE WITH GARRETT AND FIND BETTER IDEAS IN FLASHPOINT TRADER



 





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