What a time it’s been for SLB. In the past six months alone, the company’s stock price has increased by a massive 53.6%, reaching $55.78 per share. This performance may have investors wondering how to approach the situation.
Is there a buying opportunity in SLB, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is SLB Not Exciting?
We’re happy investors have made money, but we're swiping left on SLB for now. Here is one reason why SLB doesn't excite us and a stock we'd rather own.
Low Gross Margin Reveals Weak Structural Profitability
While energy gross margins can be distorted by commodity prices, hedging, and short-term cost swings, sustained margins across a full cycle reflect a producer’s underlying asset quality, infrastructure position, and cost structure.
SLB, which averaged 21.5% gross margin over the last five years, exhibiting bottom-tier unit economics in the sector. It means the company will struggle at higher commodity prices than peers with better gross margins.
Final Judgment
SLB isn’t a terrible business, but it doesn’t pass our bar. Following the recent rally, the stock trades at 19.8× forward P/E (or $55.78 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at our favorite semiconductor picks and shovels play.
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