Has Gulfport Energy Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Gulfport Energy (Nasdaq: GPOR  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Gulfport Energy.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

23.0%

Pass

 

1-Year Revenue Growth > 12%

31.7%

Pass

Margins

Gross Margin > 35%

79.2%

Pass

 

Net Margin > 15%

32.0%

Pass

Balance Sheet

Debt to Equity < 50%

21.0%

Pass

 

Current Ratio > 1.3

0.44

Fail

Opportunities

Return on Equity > 15%

14.4%

Fail

Valuation

Normalized P/E < 20

32.99

Fail

Dividends

Current Yield > 2%

0%

Fail

 

5-Year Dividend Growth > 10%

0%

Fail

       
 

Total Score

 

5 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Gulfport Energy last year, the company has dropped a point, with return on equity getting cut roughly in half. Until yesterday, the stock had been stuck in the doldrums, posting roughly flat performance for the year until a big move up after some really good news.

Gulfport is a very small producer of oil and natural gas, but it has gotten itself involved in one of the hottest new areas for exploration: the Utica Shale. Chesapeake Energy (NYSE: CHK  ) has much larger land holdings in the area, even after selling a one-quarter interest in more than 600,000 acres in the play to Total (NYSE: TOT  ) . But Gulfport was one of the first players to realize the Utica's potential, and it has about 125,000 acres there.

Earlier this year, things looked pretty grim for Gulfport. Earnings came crashing down with lower oil and gas prices, and despite having followed other producers like SandRidge Energy (NYSE: SD  ) and Quicksilver Resources (NYSE: KWK  ) in concentrating on oil, Gulfport struggled to keep its share price from plunging.

More recently, though, the stock recovered most of its losses. The company's Wagner 1-28H well has produced huge amounts of natural gas, while its Boy Scout 1-33H well is more oriented toward natural gas liquids and condensate, which yields better prices than dry gas.

Yesterday, Gulfport shares rose 15% after announcing strong results on a new well. Gulfport's Shugert 1-12H well in the Utica Shale area produced a test of 28.5 million cubic feet of natural gas, with more than 2,900 barrels of natural gas liquids. If the company has similar success with future wells, the sky could be the limit for the stock.

For Gulfport to improve, it would ideally like to see sustained gains in natural gas prices. That, combined with more success stories like Shugert, could push the company a lot closer to perfection.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Gulfport is a small player, but it's not much smaller than SandRidge was when it first started out. Now, SandRidge is halfway through its ambitious three-year plan to profitability, and the future looks bright. But is SandRidge a buy right now, with natural gas prices still low? Find out more about this emerging oil and gas junior and its strengths and weaknesses in our brand new premium report detailing SandRidge's game plan and what to expect from the company going forward. To get started, click here!

Click here to add Gulfport Energy to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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