I’m buying Callon Petroleum Stock. Here’s why:

This isn’t one of those algorithmically written articles you find on stocks. This is, I hope, a thoughtful set of ideas on what I see as a very clear buying opportunity.

Dozens of premium shale drillers in the permian basin and elsewhere that have attracted so much investor interest over the last 8-9 years are still well positioned to profit from a long-term play that we’re all familiar with. But why is Callon so exciting at this moment?

First, the fundamentals:

  • Revenue is up 402% to $551 from 2015-18 despite the volatility in crude prices.

  • From 2017 to 2018, revenue rose 160% while net income rose 249% on rock-solid operations. Profits are growing.

  • The balance sheet is rock solid, with $4.1B of assets to $1.68B of liabilities. As a result, company has room to grow (hence recent rumors about the company considering a bid for shale driver acquire QEP.

  • The company’s stock price is now lower than the value of its’ net assets, reflecting an absurd level of conservatism among mid-cap, relatively volatile stocks in this market environment.

Now, the stock performance:

  • The stock is down 20.38% over 3 months, with a P/E ratio of just 6.44 and a May earnings beat with operating revenues of $153 million vs the Zacks Consensus Estimate of $146 million and the year-ago value of $127.4 million.

  • The stock is just 9% above the low it achieved at the bottom of the market at the end of December, 2018 when oil prices, and the broader market, were cratering.

    • In contrast, the broader market is 14% up above the lows achieved in December and the price of oil is up 26% despite its’ turbulent few weeks.

As you can see, the performance of the stock is lagging the company’s financial performance and fundamentals, as well as the broader market. With markets calming from a week obsessed with tariffs, we should see a massive recovery.

Disclosure: Of course I own it!