Adams Resources & Energy, Inc. (NYSEMKT:AE) is a small-cap company that purchases crude oil and natural gas and arranges sales and deliveries to refiners and other customers; offers value added services by providing access to common carrier pipelines and handling daily volume balancing requirements; markets branded and unbranded refined petroleum products, such as motor fuels and lubricants; transports liquid chemicals and engages in domestic oil and natural gas exploration and development. AE was founded in 1973 and is headquartered in Houston, Texas. The 52 week high was $75.12, the low $27.85. At the submission of this article, AE was at $38.00 and change.
The following explains why I believe AE is substantially undervalued and represents an attractive opportunity for significant price appreciation. Macro-economically, the energy sector is doing well and forecasted to do even better as the economy continues to improve. AE has proven oil reserves that should add to the bottom line as oil prices rise and recovery techniques improve (fracking).
The company has no long-term debt and appears to be undervalued by most traditional measures. The trailing 12 month PE ratio is 6.7 vs. the industry average of 19.3 and the estimated forward PE ratio is just 6.0. The five (5) year average PE ratio for AE is 12.6. so, it is currently trading at about ½ its five year average. As of the writing of this article, the stock trades at 1.3 times its $31.58 book value vs. the industry average of 4.3 and price to cash flow is 3.6 vs. the 6.3 industry average. Revenue and earnings per share growth approach 20% over the last 12 months, far exceeding industry averages. The stock dividend yields 1.65%
If this information is not enough to whet the appetite, consider that insiders have been purchasing the stock since November 2012, most recently in the low $30s and there have been no reported sells during the same period which is a positive sign. Analyst sentiment is bullish and technical indicators have been mostly bullish for the last 90 days.
AE has a relatively high 1.7 beta, can be volatile, and trades somewhat thinly; but, barring a negative surprise, could easily approach $60 when the market recognizes its true value. A lukewarm earnings report however, could drop AE to the low $30s rather quickly given its high beta so be careful. The company reports next on March 21st.
As with any stock, there is the risk of capital loss; so conduct your own research and speak with your investment advisor before buying AE. I have been long AE since October 2012.
Disclosure: I am long AE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.