Expro has been treading water for the past six months, recording a small return of 2% while holding steady at $17. The stock also fell short of the S&P 500’s 10.9% gain during that period.
Is there a buying opportunity in Expro, 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 Expro Not Exciting?
We’re passing on Expro for now. Here are three reasons why there are better opportunities than XPRO, plus one stock we’d rather own.
1. 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.
Expro’s $1.55 billion of revenue in the last year is pretty small for the industry, suggesting the company hasn’t hit a level of diversification where investors can sleep easy at night.
2. Low Gross Margin Reveals Weak Structural Profitability
In a single quarter or year, gross margins in the sector can swing wildly due to commodity prices, hedging, or changes in labor costs. Over a multi-year period across different points in the cycle, gross margin differences can signal whether a company is a structurally-advantaged producer (“rock” quality, takeaway, operating costs) or not.
Expro, which averaged 20.2% gross margin over the last five years, exhibited bottom-tier unit economics in the sector. It means the company will struggle at higher commodity prices than peers with better gross margins.
3. Mediocre Free Cash Flow Margin Limits 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.
Expro has shown weak cash profitability relative to peers over the last five years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 2.1%, below what we’d expect for an upstream and integrated energy business.
Final Judgment
Expro isn’t a terrible business, but it isn’t one of our picks. With its shares underperforming the market lately, the stock trades at 13.8× forward P/E (or $17 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We’re pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at the most dominant software business in the world.
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