Exxon Mobil shares fell by -1.7% during the day's morning session, and are now trading at a price of $103.36. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
A Very Low P/E Ratio but Trades Above Its Graham Number:
Exxon Mobil Corporation engages in the exploration and production of crude oil and natural gas in the United States and internationally. The company belongs to the Energy sector, which has an average price to earnings (P/E) ratio of 7.54 and an average price to book (P/B) ratio of 1.68. In contrast, Exxon Mobil has a trailing 12 month P/E ratio of 7.0 and a P/B ratio of 2.1.
When we divide Exxon Mobil's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -0.99. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
Low Leverage Levels and Exceptional EPS Growth:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $264,938 | $181,502 | $285,640 | $398,675 |
| Gross Margins | 21.1% | 4.5% | 22.7% | 25.8% |
| Operating Margins | 100.0% | -15.9% | 10.9% | 15.9% |
| Net Margins | 5.41% | -12.36% | 8.07% | 13.98% |
| Net Income (MM) | $14,340 | -$22,440 | $23,040 | $55,740 |
| Net Interest Expense (MM) | -830 | -1,158 | -947 | -798 |
| Net Interest Expense (MM) | -$830 | -$1,158 | -$947 | -$798 |
| Depreciation & Amort. (MM) | -$18,998 | -$46,009 | -$20,607 | -$24,040 |
| Earnings Per Share | $3.36 | -$5.25 | $5.39 | $14.77 |
| EPS Growth | n/a | -256.25% | 202.67% | 174.03% |
| Diluted Shares (MM) | 4,270 | 4,274 | 4,275 | 4,043 |
| Free Cash Flow (MM) | $5,355 | -$2,614 | $36,053 | $58,390 |
| Capital Expenditures (MM) | -$24,361 | -$17,282 | -$12,076 | -$18,407 |
| Net Current Assets (MM) | -$113,607 | -$123,727 | -$104,086 | -$68,963 |
| Current Ratio | 0.78 | 0.8 | 1.04 | 1.41 |
| Long Term Debt (MM) | $24,672 | $45,502 | $41,667 | $40,559 |
| Net Debt / EBITDA | 1.07 | 3.23 | 0.75 | 0.11 |
Exxon Mobil has exceptional EPS growth and low leverage. Additionally, the company's financial statements display growing revenues and decreasing reinvestment in the business and generally positive cash flows. However, the firm suffers from slimmer gross margins than its peers and weak operating margins with a negative growth trend. Finally, we note that Exxon Mobil has just enough current assets to cover current liabilities.
