APA CORP (NASDAQ:APA) – An Undervalued Energy Stock Worth Considering

APA CORP (NASDAQ:APA) was identified as a decent value stock by our fundamental screening process. The company operates in the oil and gas sector, with exploration and production activities in the U.S., Egypt, and the U.K. APA stands out due to its attractive valuation, solid profitability, and reasonable financial health, making it a candidate for value investors.

Valuation – A Key Strength

APA’s valuation metrics suggest the stock is priced at a discount compared to peers and the broader market:

• P/E Ratio of 5.17 – Significantly lower than the industry average (21.53) and the S&P 500 (26.32).
• Forward P/E of 7.31 – Still well below the sector and market averages.
• Enterprise Value/EBITDA – APA is cheaper than 94% of its industry peers.
• Price/Free Cash Flow – More attractive than 97% of competitors.

These metrics indicate that APA is trading at a substantial discount despite its operational strengths.

Profitability – Strong Returns

The company earns a Profitability Rating of 7/10, supported by:

• Return on Equity (ROE) of 18.75% – Outperforming 81% of industry peers.
• Return on Invested Capital (ROIC) of 15.67% – Among the best in the sector, beating 90% of competitors.
• Operating Margin of 32.56% – Higher than 73% of similar companies.

These figures suggest APA efficiently converts capital into profits, a positive sign for long-term investors.

Financial Health – Some Risks, But Manageable

APA’s Health Rating of 5/10 reflects a mixed picture:

• Low Debt/Equity (0.96) – Better than 68% of peers, indicating manageable leverage.
• Strong Debt/FCF (1.33) – APA could repay all debt in just over a year using free cash flow.
• Weak Liquidity Metrics – Current and Quick Ratios below 1.0 signal short-term liquidity concerns, though this is common in the energy sector.

While liquidity is a concern, APA’s ability to generate cash flow helps mitigate risks.

Growth – Past Strength, Future Uncertainty

The Growth Rating of 5/10 highlights:

• Revenue Growth (26.76% YoY) – A strong recent performance.
• Long-Term EPS Growth (245,758% average over past years) – Skewed by prior losses turning to profits.
• Expected EPS Growth (12.27% annually) – Positive, though revenue growth is projected to slow.

While future growth may moderate, APA’s past performance and profitability support its investment case.

Dividend Appeal

APA offers a 5.01% dividend yield, higher than the S&P 500 average (2.40%). The payout ratio (36.11%) is sustainable, and the company has maintained dividends for over a decade.

Our Decent Value Stocks screener lists more stocks with strong valuations and fundamentals.
For a deeper analysis, review the full APA fundamental report.

Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but you should conduct your own research before making investment decisions.