Tellurian Inc. (TELL) is a natural gas company focused mainly on developing natural gas and liquefied natural gas (LNG) production and engages in building up infrastructure assets.

Last month, TELL announced that its wholly owned subsidiary Tellurian Production LLC (TPC) had closed its acquisition of certain assets in the Haynesville Basin from privately held EnSight IV Energy Partners, LLC and EnSight Haynesville Partners, LLC, for a cash consideration of $125.50 million.

The stock has gained 33.4% over the past year and 34.7% year-to-date to close its last trading session at $4.15. However, it has declined 4.8% over the past five days.

Here are the factors that could affect TELL’s performance in the near term:

Fund Raising

TELL is looking to secure its next round of funding for its Driftwood LNG project. The company is reportedly proposing several adjustments to a planned debt offering first outlined late last month that would move forward with the southwestern Louisiana project.

On August 29, TELL announced its plans to sell senior secured debt paying 11.25% in interest while also giving investors warrants to buy the company’s common stock.

Stretched Valuations

In terms of its forward EV/Sales, TELL is trading at 5.65x, 194.3% higher than the industry average of 1.92x. The stock’s forward EV/EBITDA multiple of 27.59 is 391.5% higher than the industry average of 5.61. In terms of its forward Price/Sales, it is trading at 5.93x, 335.3% higher than the industry average of 1.36x.

Negative Profit Margins

TELL’s trailing-12-month gross profit margin of 11.01% is 72.4% lower than the industry average of 39.92%. Its trailing-12-month EBITDA margin and net income margin of a negative 33.47% and 50.43% are significantly lower than their respective industry averages of 25.28% and 9.90%.

The stock’s trailing-12-month ROE, ROTC, and ROA of a negative 27.49%, 8.02%, and 9.23% compare to their respective industry averages of 15.53%, 6.76%, and 5.79%.

POWR Ratings Reflect Bleak Prospects

TELL’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

TELL has a Stability grade of F in sync with its five-year monthly beta of 2.15. The stock has an F grade for Value and Quality, consistent with its high valuations and negative profitability margins.

In the B-rated, 95-stock Energy – Oil & Gas industry, it is ranked last.

Click here to see the additional POWR Ratings for TELL (Growth, Momentum, and Sentiment). View all the top stocks in the Energy – Oil & Gas industry here.

Bottom Line

TELL’s offering to raise funds might create some debt burden for the company. Also, its negative profitability margins look concerning. With Wall Street analysts expecting a downside in the stock, it might be best avoided now.

How Does Tellurian Inc. (TELL) Stack Up Against Its Peers?

While TELL has an overall POWR Rating of F, one might consider looking at its industry peers, Whitecap Resources Inc. (SPGYF) and Valero Energy Corporation (VLO), which have an overall A (Strong Buy) rating, and APA Corporation (APA) and Birchcliff Energy Ltd. (BIREF), which have an overall B (Buy) rating.

TELL shares were trading at $3.90 per share on Thursday morning, down $0.25 (-6.02%). Year-to-date, TELL has gained 26.62%, versus a -16.99% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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