ExxonMobil Is Pretty Cheap, But Is It A Good Buy?

A company that had always been one of the frontrunners in many ways, is now relatively cheap to buy stock in. ExxonMobil (NYSE: XOM) is hovering at one of its lowest prices since the late 1980s. That means the stock is nearing a 30-year low.

When you hear of a company that’s proven to be reliable is at one of their lowest points in decades, that would make you assume that the ExxonMobil isn’t doing so hot right now. However, you’ll soon find out that the opposite may actually be true.

Why so Cheap?

So, the million dollar question – why is ExxonMobil’s stock so cheap? We’re talking the price to tangible book value being around 30 percent lower than its 10-year average.

A few factors are contributing to the stock price drop. For starters, the company’s return on capital employed (ROCE) is quite low. ROCE is a measurement of how well a company handles shareholder money. That sounds pretty scary, doesn’t it?

For quite a while, ExxonMobil usually was one of the pack leaders for the oil industry when it came to ROCE. Once 2014 came around, and we entered a bear market for oil, ExxonMobil gave up its lead and fell back into the middle of the pack, and it’s stayed there ever since.

However, that’s slowly starting to change. The company laid out a rather aggressive growth plan to double their earnings and cash flow by 2025. That’s a pretty hefty goal. They did, though, land in an oil haven back in 2015 when they made their way into the coast of Guyana.

How do they expect to reach this goal? By putting in up to $30 billion a year to grow its upstream (drilling) and downstream (chemicals and refining) businesses. They also plan to put more attention on improving their ROCE score on top of increasing production.

That brings us to the second factor that’s dropped ExxonMobil’s stock – falling production levels. Well, if their quarterly earnings surpassing their expectations speaks to anything, they’re well on their way to improving their production levels.

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