Over the last six months, Borr Drilling’s shares have sunk to $4.58, producing a disappointing 17.8% loss - a stark contrast to the S&P 500’s 14% gain. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Borr Drilling, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Borr Drilling Not Exciting?
Despite the more favorable entry price, we don’t have much confidence in Borr Drilling. Here are two reasons why there are better opportunities than BORR, plus one stock we’d rather own.
1. Fewer Distribution Channels Limit Its Ceiling
The size of the revenue base is a way to assess topline, and it tells an investor whether an Energy producer has crossed the line between being a more vulnerable commodity taker and a durable operating platform. Scaled businesses tend to produce and generate revenue from many wells, pads, takeaway routes, and geographies, not just a single field or drilling program.
Borr Drilling’s $1.02 billion of revenue in the last year is pretty small for the industry, suggesting the company is a subscale business in an industry where scale matters.
2. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Borr Drilling’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 15.4%, meaning it lit $15.45 of cash on fire for every $100 in revenue.
Final Judgment
Borr Drilling isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 8.3× forward EV-to-EBITDA (or $4.58 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at a top digital advertising platform riding the creator economy.
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