What a time it’s been for Cactus. In the past six months alone, the company’s stock price has increased by a massive 56.7%, setting a new 52-week high of $62.03 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy WHD? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Does Cactus Spark Debate?
Named for the spiky wellhead equipment that reminded founders of desert cacti, Cactus (NYSE: WHD) manufactures wellheads, valves, and spoolable pipes used in drilling and producing oil and gas wells.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term performance can give signals about its business quality. Even a bad business, especially in a cyclical industry, can shine for a year or so, but a top-tier one should exhibit resilience through cycles. Luckily, Cactus’s sales grew at an incredible 33.6% compounded annual growth rate over the last five years. Its growth beat the average energy upstream and integrated energy company and shows its offerings resonate with customers.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Cactus has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the energy upstream and integrated energy sector, averaging 21.9% over the last five years.
One Reason to be Careful:
Fewer Distribution Channels Limit its Ceiling
In Energy, scale separates fragile single-asset producers from platform-style businesses that generate revenue across entire basins and infrastructure networks.
Cactus’s $1.19 billion of revenue in the last year is pretty small for the industry, suggesting the company is subscale business in an industry where scale matters.
Final Judgment
Cactus’s merits more than compensate for its flaws, and with the recent rally, the stock trades at $62.03 per share (or a forward price-to-sales ratio of 2.6×). Is now a good time to buy? See for yourself in our full research report, it’s free.
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