- Marine energy carrier International Seaways has posted double and triple digit returns as the market corrected
- Revenue growth accelerated in the past two quarters and analysts see strong gains in the third quarter
- The company raised its dividend earlier this year
It’s not very common these days to find a stock like International Seaways (NYSE: INSW)with these dazzling returns:
- 1 month: +17.69%
- 3 months: +62.69%
- Year to date: +139.17%
The New York-based company is a sea transporter of crude oil and other petroleum products. It is considered part of the midstream industry, within the energy sector.
The company owns and operates a fleet of vessels in two business segments: product tankers and oil tankers. As the name suggests, crude oil tankers transport unrefined crude oil to refineries. The smaller product tankers transport the refined products to ports near end users.
This is a small company with a market cap of $1.7 billion and 48.2 million shares of float. Smaller companies like these often outperform the broader market, but can be more volatile. When that volatility comes up, as we see in this case, it could be a boon for investors.
However, when you look at this stock, be aware that because of the small number of stocks, there is not the kind of active price movement you see in a larger stock, such as midstream peer Enterprise Products Partners (NYSE: EPD). If you look at your brokerage or charting program, you’ll see Enterprise Partners’ price moving every few seconds, while International Seaways’ price could stagnate for minutes. That is simply a factor of institutional ownership and liquidity.
That doesn’t mean you shouldn’t look at smaller stocks, which, as you can see, can deliver outrageous returns. A lot of research has shown that small caps can sometimes outperform larger stocks. There are various reasons the asset classes differ in valuation percentages But the lower liquidity of some smaller stocks, such as International Seaways, can make it harder to buy or sell at the exact price you had in mind. Usually it doesn’t matter that much, but be aware of that potential snafu.
Growth is accelerating
International Seaways reported its second quarter on August 9, and its stock has risen 8.83% since then.
The company has suffered a series of quarterly losses, but revenue growth accelerated over the past two quarters, from 67% to 307%.
However, analysts see the company earning $1.95 per share in the third quarter on revenue of $214.92 million.
Just over a year ago, International Seaways completed the merger with Diamond S Shipping. The move made the combined company the largest US-listed tanker company by number of ships, with more than 100 vessels. Global energy demand is the biggest driver of the company’s growth. In an interview with CEO Magazine published in July, International Seaways CEO Lois Zabrocky said the company invests in its own infrastructure during declining markets, making it better prepared for boom times like this one.
Wall Street has condemnation
According to data from MarketBeat analysts, the consensus rating on the stock is a “buy” rating. You don’t see that very often now, as many high-performing stocks are labeled ‘moderate buy’.
The company went public in 2016, a result of previous companies. Unlike many small caps, the dividend pays out. Other small businesses engaged in energy transportation, such as: Torm (NASDAQ: TRMD) and Scorpion Tankers (NYSE:STNG)also return a distribution to shareholders in the form of a dividend.
International Seaways started pay dividend in 2020. It increased the quarterly payout to $0.12 per share, from $0.06 per share, for a return of 1.03%
Given all the positives of this stock, could it be priced to perfection, meaning it will be ready for sale in the near term?
It is possible. Because the company reported a loss in 2021, there is no current P/E ratio. But the sharp rise in prices is an indication that institutions may be willing to take some profits.
In fact, since September 20, the stock has been languishing a bit, with a slight pause in the uptrend, finding support above the 21-day moving average.
That doesn’t mean there won’t be another rally soon, but don’t be shocked if the stock pulls back in the near term, as is typical after an exceptionally strong rally.