Energy transition company Vertex Energy, Inc. (VTNR) is a specialized refiner of alternative raw materials or replacement fuel for industrial burners and a distributor of high purity petroleum products. As VTNR’s Refined Products margins on conventional fuels reach multi-year highs in the first quarter of 2022 and investors grow more optimistic about its continued growth in used motor oil (WMO) collections, as well as oil prices at 13-week high last week, shares of the energy company have jumped 254.3% so far this year and 68.8% in the past month.
However, the stock is down 2% in the past five days as the US stock market is now in bearish territory amid fears of a potential recession. While the environmental services company could benefit from the optimism surrounding the energy transition market, its losses widened significantly year-over-year in the first quarter. Additionally, VTNR’s negative profit margin could be a concern. While the energy company’s strong operating momentum and growing regional demand may help it improve its margins, its lofty valuation is not keeping pace with its mounting losses.
Here is what could influence the performance of VTNR in the short term:
Acquisition of the mobile refinery
In April, the specialty refiner acquired the Mobile, Alabama refinery and related marine terminal and logistics assets from Equilon Enterprises LL for $75 million in cash, as well as approximately $25 million for capital expenditures. As the acquisition positions the energy transition company to become a leading regional supplier of renewable and conventional products, it could increase spending and weigh heavily on its already fragile balance sheet.
Energy market volatility
While the financial market and oil prices see wild swings amid nervousness over a possible recession, inflation and rising interest rates, the energy market is expected to remain volatile. Moreover, with several countries facing challenges in increase their crude production supply, oil prices are expected to remain volatile. Since energy company VTNR is exposed to market risks related to the volatility of crude oil and refined petroleum products and interest rate risks, its stock price could experience a decline in the short term.
For the first quarter ended March 31, 2022, VTNR’s gross profit was $1.54 million, down 27.6% from the prior year period. Its operating loss was $7.27 million from $760.94 thousand. VTNR suffered a net loss of $808.87 thousand and a loss per share of $0.24 over this period. Additionally, the company reported free cash flow of negative $10.81 million.
VTNR’s trailing 12-month gross profit margin of 3.4% is 91.4% below the industry average of 39.5%. In addition, its net profit margin, EBITDA margin, the ROA and ROE are respectively negative at 18.2%, 14.7%, 8.5% and 74.2%. Additionally, the company’s trailing 12-month operating cash flow came in at negative $30.49 million.
In terms of trailing 12-month EV/sales, VTNR is currently trading at 10.03x, 261.1% higher than the industry average of 4.01x. And its 12-month price-to-sales multiple of 7.48 is 276.7% higher than the industry average of 1.99. Additionally, the company’s 12-month price-to-book ratio of 10.26x is 336.4% higher than the industry average of 2.35x.
POWR ratings reflect bleak outlook
VTNR has an overall rating of D, which translates to Selling in our POWR Rankings system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight different categories. VTNR has a C rating for quality and an F for stability. The stock’s negative profit margin and higher volatility are reflected in these ratings.
Also, it has an F rating for value. This is consistent with the price-to-sales ratio above that of the industry.
Beyond the ratings I highlighted above, we also rated VTNR for Growth, Momentum, and Sentiment. Get all VTNR ratings here.
VTNR is ranked #88 out of 100 stocks in the B rating Energy – Oil & Gas industry.
Although shares of VTNR have risen significantly this year due to its high margins on refined products, soaring oil prices and rapid growth in business operations, the stock appears to be highly volatile given the risks in the field of energy in an uncertain environment. On top of that, the stock’s stretched valuation and skyrocketing losses could send its shares plummeting in the coming months. As such, the stock is best avoided now.
How does Vertex Energy, Inc. (VTNR) compare to its peers?
Although VTNR has an overall POWR rating of D, one might consider taking a look at its industry peers, Adams Resources & Energy, Inc. (EA) and Whitecap Resources, Inc. (SPGYF), having an A (Strong Buy) rating.
VTNR shares were trading at $14.64 per share on Monday afternoon, down $1.41 (-8.79%). Year-to-date, the VTNR has gained 223.18%, compared to a -20.05% rise in the benchmark S&P 500 over the same period.
About the Author: Imon Ghosh
Imon is a financial analyst and journalist with a passion for financial research and writing. She started her career at Kantar IMRB, a leading market research and consumer advisory organization. After…