Another Look at Lukoil

It might be a little disingenuous to say that Lukoil (OTC BB: LUKOY.PK) no longer really gets its due. Though it may trade on the Pink Sheets, there's still plenty of volume for the stock of this large Russian energy company. What's more, it has closed a lot of the valuation gap between itself and other major energy companies like ExxonMobil (NYSE: XOM), ConocoPhillips (NYSE: COP), BP (NYSE: BP), and Petrobras (NYSE: PBR).

Then again, with results like it had in this past year, why shouldn't it be a popular idea?

And 2005 was definitely a strong year. Revenue rose about 65%, operating income rose 56%, and EBITDA climbed 44%. And while the company did not provide a quarterly breakout, backing the numbers out on my own would suggest quarterly growth of about 62% for revenue and 54% for operating income.

Lukoil is benefiting from the same one-two punch that has helped other energy companies that have managed to raise production in this higher-price environment. Production was up more than 5% for the full fiscal year and prices were clearly higher as well. And Lukoil also continues to look to add productive assets to its base -- having recently agreed to pay nearly $800 million to Marathon Oil (NYSE: MRO) for its Western Siberian assets.

I liked Lukoil's valuation around the start of this year, particularly with respect to how it compared with the valuations of other energy companies in developing economies (though the extent to which Russia is a developing economy is open to question). Since then, though, many of the emerging market energy stocks have meaningfully outpaced their more sedate American and Western European peers.

With that margin of safety shrunk, I'm no longer quite as fond of Lukoil as before. I don't dislike the company and I don't think the stock is all that terribly overpriced, but it's just not the clear bargain that it once was. And given the ups and downs of politics and business in Russia, I for one would demand a pretty fat cushion before sitting down at that table.

For more energetic Foolishness:

• Delving Into Devon
• BP Needs Better Performance
• Where's the Love for Lukoil?

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).