Energy Stock Nears Buy Point In Resilient Action As Earnings Growth Surges

Energy stock Comstock Resources (CRK) is in a base. CRK has been forming a cup the past 12 weeks as shares show resilience. The company reported better-than-expected Q2 earnings on Aug. 1.

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Comstock Resources is a leading natural gas producer with over 1,600 drilling locations in Louisiana and Texas.

The IBD 50 company is ranked No. 1 in IBD’s Oil & Gas Exploration-Production industry group. The group has dropped from No. 4 just three months ago to No. 49 out of 197 groups. The sector has pulled back on concerns of steep interest-rate hikes in many nations, which could affect global demand for oil.

Energy Stock Forming A Cup Base

The cup base began in early June and has a buy point of 22.21, according to the IBD MarketSmith chart. Wednesday’s lows tested the 21-day exponential moving average, but the stock rebounded and is trading above the line. The relative strength line has been trending up since early July. Those are favorable indications that many other energy stocks lack.

The energy stock has a 99 Relative Strength Rating, meaning it has performed better in the last 12 months than 99% of the stocks IBD tracks.

Comstock reported better-than-expected Q2 sales and earnings, with management sticking to its full-year 2022 guidance. Second-quarter earnings per share grew 400% from the year-ago period.

Quarterly EPS growth accelerated from $0.34 to $0.37, $0.50 and $1.00 per share in the last three quarters. Analysts are expecting a 207% increase in annual EPS in 2022, and a lesser but still impressive 26% in 2023. Comstock has a 60% three-year sales growth rate.

Increased Cash Flow To Reduce Debt

The company holds a best-possible 99 Composite Rating and a 97 EPS Rating. It earns a top-notch Timeliness Rating of A, which measures potential relative price performance in the next 12 months.

Comstock has a strong 27% return on equity, a measure of financial efficiency.

The natural gas company prides itself in increasing annual free cash flow, with debt retirement its first priority using those cash flows. CRK has a high 258% debt-to-equity ratio.

Comstock completed a $35.6 million acquisition in Q2 that included about 60,000 net acres in Haynesville, La., and East Texas, a natural gas pipeline and a natural gas treatment plant.

Mutual Funds Own Majority of Shares

Mutual funds hold 71% of the energy stock, a positive factor. Funds have been adding shares, with 342 owning the stock in June, up from 308 in March and 274 in December.

Shares have gained over 20% in the last month, and contributed to strong returns for the iShares U.S. Oil & Gas Exploration & Production ETF (IEO).

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