About Schlumberger

While most of the gigantic, well-known energy, oil and gas companies such as ExxonMobil, Chevron, Shell and others typically get the majority of the spotlight from the pundits, we’d like to give a company with a funny name a chance.

Schlumberger.

Yeah, say that a few times over and try not to laugh.

However, your money and future financial wealth (or lack thereof) is no laughing matter. 

Therefore, we think performing initial due diligence and analysis of a company’s financials, even if it does have a funny name, is crucial when deciding who to trust with your dry powder.

Our team finds it sort of strange that Houston, Texas-based Schlumberger doesn’t get much airtime from the business news networks, given that it holds nearly 30% of their niche of the energy and power sector, is a global leader and manufacturer of vital equipment and technology used in drilling, fracking, logging and practically anything involving high stakes oil and gas-related activities.

Irrespective of one’s views on the oil and gas industry as a whole, Schlumberger serves an important role and has worked with (and likely currently works with) some of the larger aforementioned players in the sector.

Now that we’ve laid some of the groundwork regarding Schlumberger and what the company does, let’s get into the real meat and potatoes, the numbers.

Schlumberger’s stock financials

The company’s stock price is currently trading at a flat $34 with a market capitalization of $47.86 billion, a price-to-earnings (P/E) ratio of 18.54 and shells out an annual dividend of $0.70 (yielding 2%) to its shareholders.

So far, so decent.

Schlumberger’s stock appears to be trading at about what it’s worth (or fair value) according to its current P/E ratio being slightly below 20 (which itself is generally considered to indicate fair value while anything above is overvalued and anything below is undervalued).

Onto the company’s balance sheet, Schlumberger’s C-Suite manages approximately $41.5 billion in total assets along with around $26.5 billion in total liabilities.

Pictured above is a Schlumberger plant in the 1950s in one of the coolest places on earth, Houston, Texas

We’re pleased with Schlumberger’s strong asset coverage and given these figures alone, we’re not concerned with the company being overleveraged nor do we think it’s ill-equipped to weather a financial storm if it happens to come its way anytime soon.

However, the clouds are getting slightly darker over our heads as we step over to the company’s revenue over the past five years.

Specifically, Schlumberger’s total revenue(s) between 2017 and 2019 generally stood at around $31 billion and subsequently dropped off between 2020 and 2021 to around $22 billion.

This is a large enough drop that warrants legitimate cause for concern and makes us wonder what is going on.

Sure, a publicly traded company is entitled to a few iffy years, but when revenue drops by almost $10 billion, prospective and current investors should begin to ask questions.

We’re especially surprised given how favorable the demand market has been with regards to oil and gas companies, many of which are likely Schlumberger’s core customers. As widespread, major threats of COVID-19 begin to seemingly subside, demand and the price of oil has gradually risen (as people begin traveling more), upping oil and gas producer’s demand to expand and embark on new projects in order to meet the global consumer demand while profiting handsomely in the process. If Schlumberger is an integral part of these companies’ successes, as their technology is used by these operators, why is it that sales are down?

We think it might have to do with drilling.

Given that many companies have faced intense scrutiny over its drilling and fracking practices and have been pressured to engage in more climate-friendly activities, this might have been the direct cause for less demand for Schlumberger’s products.

Although the company itself appears to be focused on going green, selling products and services related to traditional drilling and fracking likely account for a substantially large portion of Schlumberger’s revenue.

If the company can strategically pivot and invest in new, environmentally driven products and technologies, we’ll sleep a lot better at night knowing their customers will be more at ease, however if the company can’t make the necessary changes in order to meet its clients and ultimately the consumer’s demands, we don’t maintain the best outlook on the company’s future, especially in terms of future revenue generation and growth.

This softening sales and revenue trend can also be identified on the company’s cash flow statement, as their net income in 2019 and 2020 was around -$10.1 billion and -$10.4 billion, respectively.

Not exactly confidence invoking from our team’s perspective.

Schlumberger’s stock fundamentals

Thankfully, outside of declining and weakening revenues, it’s not all complete doom and gloom for Schlumberger.

For instance, the company’s trailing twelve month (TTM) net profit margin is considerably higher than that of the industry’s averages, sitting at 10.73% compared to the industry’s average of -1.2%, according to TD Ameritrade’s platform.

Market share is a powerful tool.

Another bright spot for the company is that it also outperforms the competition in the industry when it comes to TTM returns on equity, assets and investment, which is another byproduct and reason that we’re grateful that Schlumberger’s a leader in the energy and oil and gas manufacturing sector(s).

Should you buy Schlumberger stock?

Declining revenue scares us and we hope it scares you too.

While every investor should and must have their own opinions on the market(s) and specific stocks and companies, the objective fact of the matter is that if sales and/or revenues are falling for a mature leader in the oil and gas space such as Schlumberger during a time where other companies are prospering, something must change.

Although it is assuring that the company is able to achieve strong profit margins and returns, if the company isn’t selling as much or its current products aren’t in high demand, the company will begin losing market share bit by bit and continue to see declines in revenue which will inevitably negatively impact its currently strong profitability and return metrics.

Given all of this information, we give Schlumberger a “hold” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.