Courtesy of Pioneer Natural Resources, Sands Weems-Photographer

Pioneer Natural Resources (NYSE:PXD) is up an impressive 595% over the past five years. That's a big gain to say the least as it trounces the overall market, which is up 95% over that same time frame. This vast outperformance, however, might be a cause concern that the stock might have risen too far too fast. Moreover, every company has risks that if realized could cause its stock to fall. So, while there are a number of reasons why Pioneer Natural Resources stock could keep rising it is always prudent to consider what might cause a reversal. This will prepare long-term investors for a possible opportunity to add to their position.

Valuation is running pretty hot

Thanks to those big gains Pioneer Natural Resources' valuation is pretty steep compared to most of its peers. While there are many ways to value an energy company, a quick comparison can be done by looking at the enterprise value to EBITDA ratio. The following chart does just that and compares Pioneer Natural Resources to its closest independent oil and gas peers. Pay close attention to the numbers on the far right-hand side.

PXD Chart

PXD data by YCharts

As the chart shows Pioneer Natural Resources' EV/EBITDA ratio is just over 19. That's above the 16x ratio EOG Resources (NYSE:EOG) sports and well above the 8.5x and 7.6x ratios of Occidental Petroleum (NYSE:OXY) and ConocoPhillips (NYSE:COP), respectively.

There is a reason why investors value Pioneer Natural Resources stock so highly, and that's the company's projected production growth. The company expects to double its 2013 production by 2018. While that's well above the low-to-mid single digit production growth rates of both ConocoPhillips and Occidental Petroleum, it does trail EOG Resources in terms of oil focused growth as it expects to deliver best-in-class oil production growth. That being said, highly valued stocks can fall quickly if investors decide it's time to take profits, but that might give long-term investors a nice buying opportunity.

Falling oil prices could cause a falling stock price

Like all of its oil focused peers, Pioneer Natural Resources stock does tend to move along with oil prices. Just take a look at the following chart.

WTI Crude Oil Spot Price Chart

WTI Crude Oil Spot Price data by YCharts

If oil prices were to take a tumble that would likely cause Pioneer Natural Resources stock to follow suit. However, because oil prices are known to be volatile that plunge could very well be a buying opportunity for long-term investors.

The oil export ban remains in place

Pioneer Natural Resources and other U.S. focused peers are lobbying to have the four-decade-old ban on exporting oil lifted. If the ban is lifted, the price of U.S. oil would be free to trade at the higher price fetched by the global oil benchmark Brent crude oil prices. However, if the ban remains in place there is a big concern among U.S. oil producers that the price of oil in America will fall quite substantially as U.S. refiners will be overwhelmed with light oil.

If Congress and the Obama Administration don't lift the export ban it would force producers like Pioneer Natural Resources to cut back on production growth. Under that scenario Pioneer Natural Resources sees the price of oil falling to $81 by the end of the decade, which will slow oil production growth. As the following slide shows, oil production growth in the Spraberry/Wolfcamp would be a million barrels per day less than with an export scenario that projects oil prices stay near $95 per barrel.

Source: Pioneer Natural Resources Investors Presentation. 

Knowing that keeping the export ban in place will put a lid on growth, if the current administration comes in support of keeping the ban it could cause shares of Pioneer Natural Resources and its U.S. focused peers to fall. Future growth would be muted as producers would only grow production enough to maintain adequate profitability. That being said, a falling stock price due to maintaining the export ban wouldn't be the end of the world as Pioneer Natural Resource could still earn solid returns as production would still grow.

Investor takeaway

A falling stock price wouldn't be the end of the world for Pioneer Natural Resources. It could offer long-term investors a nice buying opportunity for a company that is sitting on billions of barrels of oil and gas. 


Matt DiLallo owns shares of ConocoPhillips. The Motley Fool owns shares of EOG Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.