What happened

Shares of oil refiner Valero (NYSE:VLO) rose 13.8% in October, according to data provided by S&P Global Market Intelligence. That was noticeably better than the overall market: The S&P 500 was only up by 2% during the same period. 

Valero's outperformance was largely due to its third-quarter earnings report, which beat analysts' expectations when it was released on Oct. 24.

A young woman filling up her car at a gas station.

Most of Valero's revenue comes from its Valero-branded gas stations. Image source: Getty Images.

So what

Valero's Q3 2019 performance was actually pretty underwhelming when compared with the year-ago quarter. Revenue was down 11.7% to $27.2 billion. Net income was down 28.9% to $609 million. And per-share earnings were down 26.4% to $1.48. Long-term debt continued its slow-but-steady rise to $9.6 billion. 

However, analysts were only expecting $24.6 billion in revenue and $1.35 in earnings per share, so the market responded positively to the report. CEO Joe Gorder agreed, saying in a press release that the company had turned in "solid financial results despite challenging market conditions."

One bright spot from any standpoint was the $1.4 billion that Valero churned out in operating cash flow, which was up 188% from Q3 2018 and also higher than in Q3 2017. Gorder made much of this on the quarterly earnings call, saying it demonstrated "the flexibility and strength of our assets to deliver steady earnings and free cash flow."

Now what

Valero's results weren't anything to write home about, and the energy sector as a whole has been having ups and downs lately. But Valero has indeed shown the ability to consistently generate cash, and it has also kept an eye on the future, making comparatively big investments in ethanol and biodiesel. 

However, October's stock performance -- mostly based on the company beating the market's low expectations -- shouldn't materially affect your thesis on the stock. And at 18.2 times earnings, shares are looking fairly expensive besides.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.