Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is Penn West Petroleum Destined for Greatness?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Penn West Petroleum  (NYSE: PWE  ) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Penn West's story, and we'll be grading the quality of that story in several ways:

  • Growth: are profits, margins, and free cash flow all increasing?
  • Valuation: is share price growing in line with earnings per share?
  • Opportunities: is return on equity increasing while debt to equity declines?
  • Dividends: are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Penn West's key statistics:

PWE Total Return Price Chart

PWE Total Return Price data by YCharts

Passing Criteria

3-Year* Change


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

(146.8%) vs. (81.5%)


Improving EPS



Stock growth (+ 15%) < EPS growth

(32.6%) vs. (74.5%)


Source: YCharts. * Period begins at end of Q1 2010.

PWE Return on Equity Chart

PWE Return on Equity data by YCharts

Passing Criteria

3-Year* Change


Improving return on equity



Declining debt to equity



Dividend growth > 25%



Free cash flow payout ratio < 50%

Negative FCF


Source: YCharts. * Period begins at end of Q1 2010.

How we got here and where we're going
Penn West is nearly running on empty today with just two out of nine possible passing grades. Over the past three years, Penn West's free cash flow has fallen significantly, and as a result it can no longer sustain its present dividend payouts without spending its available cash. Penn West's modest revenue growth and falling profit margin have also cost it failing grades on this test. Is there any hope left for Penn West today? Let's dig a little deeper.

Penn West's latest quarterly results were a full third lower than the previous year's quarter, an ugly result regardless of how much is out of the company's hands. Management has said that the company has been struggling to increase revenue, which has cratered largely due to falling natural gas prices, which have resulted in a loss of around $40 million. However, Penn West has been aggressively building its production capabilities, which may be able to boost production levels into the range of 135,000 to 145,000 barrels of oil equivalent per day.

Most recently, the Canadian government announced new safety guidelines for pipeline operators -- my Foolish colleague Arjun Sreekumar notes that Penn West has recently spilled around 5,000 liters of oil in northern Alberta due to some technical problems. Environmental safety is commendable, but in the short run this could further crimp Penn West's free cash flow as it retrofits existing infrastructure. Penn West has also recent appointed David Roberts as new CEO, but this is a rare employee addition for a company that's slashed over 30% of its workforce in the last year.

Penn West has also been selling some of its assets to invest in light oil resources. Taken all together, the company clearly appears to be making every effort to streamline its cost structure, which should be welcomed by beleaguered investors who have long awaited greater profitability. Fool contributor Isac Simon points out that Penn West is currently focusing on its core projects in the Spearfish basin, which largely produces light crude oil, to avoid more substantial losses that may arise out of lingering nat-gas price weakness.

Putting the pieces together
Today, Penn West has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

There are many different ways to play the energy sector, and The Motley Fool's analysts have uncovered an under-the-radar company that's dominating its industry. This company is a leading provider of equipment and components used in drilling and production operations, and poised to profit in a big way from it. To get the name and detailed analysis of this company that will prosper for years to come, check out the special free report: "The Only Energy Stock You'll Ever Need." Don't miss out on this limited-time offer and your opportunity to discover this under-the-radar company before the market does. Click here to access your report -- it's totally free.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2623254, ~/Articles/ArticleHandler.aspx, 9/27/2016 3:29:08 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 6 hours ago Sponsored by:
DOW 18,094.83 -166.62 -0.91%
S&P 500 2,146.10 -18.59 -0.86%
NASD 5,257.49 -48.26 -0.91%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/26/2016 4:02 PM
PWE $1.71 Down -0.07 -3.93%
Penn West Petroleu… CAPS Rating: ***