Oil stocks like ExxonMobil (XOM 1.50%) can have massive ups and downs. The stock was hammered during COVID-19, but has rebounded to outperform the S&P 500 on an annualized basis over the past five years.
It's a great development for a blue-chip company that many investors gave up on after years of the stock delivering middling results. But that was then, and we're talking about now. More specifically, should investors still be putting their money in ExxonMobil stock?
Here are three observations about ExxonMobil stock today, and whether it's a buy.
1. Oil prices remain strong
Just because you shouldn't overly depend on the oil industry to buy or sell stocks doesn't mean you should ignore it completely. Oil prices have remained high enough for integrated oil companies like ExxonMobil, which explore fossil fuels and refines them to make healthy profits.
Oil prices have steadied mainly between $60 and $90 per barrel over the past few years:
WTI Crude Oil Spot Price data by YCharts
The Permian Basin is a significant production location for ExxonMobil, producing oil at roughly $38 per barrel from existing wells, according to a 2024 survey of oil producers. So, this is comfortably profitable for a company like ExxonMobil, which has a larger size and scale than your typical oil exploration company. Break-even points are even lower in Guyana, an international exploration region producing oil for between $25 and $35 per barrel.
How long will oil prices stay strong? It's impossible to know, but current geopolitical tensions, as unfortunate as they are, could support higher prices the longer they drag on. This is something investors will need to watch over time.
2. Sparkling financials
ExxonMobil is poised to shine when the oil industry inevitably experiences a downturn. The past few years of solid profits have enabled ExxonMobil to shore up its balance sheet. Today, leverage is almost zero, based on a $33 billion cash hoard that leaves net debt at just $7 billion.
XOM Cash and Short Term Investments (Quarterly) data by YCharts
The company is a famous dividend stock. Management has paid and raised the dividend for 42 consecutive years, enduring the pain of multiple recessions and oil industry downturns. Given ExxonMobil's fantastic balance sheet, it seems highly likely the dividend will survive future turmoil, making the company an eventual Dividend King. Investors get a solid 3.2% dividend yield at today's share price.
3. Shares are trading near decade highs
Investors in ExxonMobil have a lot to be excited about today. The dividend is as safe as ever, the balance sheet is in excellent condition, and profits are still rolling in thanks to higher oil prices. Naturally, optimism pushes stocks higher, and ExxonMobil is about as high as ever.
If you price the asset-rich ExxonMobil by its book value, its price-to-book value ratio is 2.3, roughly its highest rate in 10 years.
XOM Price to Book Value data by YCharts
ExxonMobil is also driving a similarly strong return on equity as the last time it was this expensive.
Is ExxonMobil a buy?
Multiple statements can be true. On one hand, ExxonMobil is seemingly justifying its higher valuation with rock-solid fundamentals and healthy oil prices that are bringing in profits. On the other, these great circumstances must likely hold up for shares to maintain this momentum, and it's unclear just how much more upside there is for investors buying shares right now.
This hemming and hawing over ExxonMobil's price tag is a clear hold signal.
Investors who have enjoyed the ride from a lower price point shouldn't necessarily look to sell, because ExxonMobil is in fantastic shape as a business and is poised to continue creating value for long-term investors. But the long term is vital here. Investors still on the outside looking in should consider waiting for some eventual volatility to shake up the share price, or at least leave some funds to buy more in the future.
