Marathon Oil Corp. (NYSE:MRO)

An analysis of the valuation multiples from 2017 to 2021 reveals a period of significant volatility, characterized by a marked compression of multiples around 2019 followed by a strong recovery in valuation by the end of 2021.

Price to Earnings (P/E) and Price to Operating Profit (P/OP)

Both earnings and operating profit multiples exhibit similar trajectories. Between 2018 and 2019, the P/E ratio increased from 12.46 to 16.99, while the P/OP ratio rose from 8.19 to 12.83. The absence of values for 2020 suggests a lack of positive earnings or operating profits during that period. By 2021, these ratios stabilized at 16.91 for P/E and 12.23 for P/OP, indicating a return to valuation levels comparable to those seen in 2019.

Price to Sales (P/S)

The P/S ratio experienced a steady decline in the first three years of the period, falling from 2.95 in 2017 to a low of 1.61 in 2019. This downward trend reversed sharply in 2020, with the ratio climbing to 2.84, and remained nearly flat at 2.86 in 2021. This movement indicates that the market valuation relative to revenue recovered to 2017 levels by the end of the observed period.

Price to Book Value (P/BV)

The P/BV ratio demonstrates a significant fluctuation in asset-based valuation. After remaining relatively stable between 2017 and 2018 (1.10 to 1.13), the ratio dropped to 0.67 in 2019, indicating that the stock traded below its book value. A recovery phase followed, with the ratio increasing to 0.83 in 2020 and reaching a period high of 1.50 in 2021, reflecting an expansion in the market premium attributed to the company's net assets.

Overall, the convergence of the P/S and P/BV ratios toward higher levels in 2021, coupled with the restoration of P/E and P/OP multiples, suggests a comprehensive valuation recovery following a trough in 2019 and 2020.

The financial performance and market valuation from 2017 through 2021 are characterized by significant volatility in earnings and corresponding fluctuations in share price and valuation multiples.

Earnings per Share (EPS) Performance

Earnings exhibit a highly cyclical trend, alternating between net losses and profitability. Substantial losses were recorded in 2017 (-6.73 US$) and 2020 (-1.84 US$). Profitable periods occurred in 2018 (1.34 US$), 2019 (0.60 US$), and 2021 (1.29 US$), indicating instability in bottom-line performance over the five-year period.

Share Price Fluctuations

The share price experienced a period of decline and subsequent recovery. After starting at 15.18 US$ in 2017 and peaking at 16.68 US$ in 2018, the price dropped to a period low of 10.25 US$ in 2019. A strong recovery followed, with the price ascending to 21.89 US$ by December 31, 2021.

Price-to-Earnings (P/E) Ratio Interpretation

The P/E ratio is not applicable for 2017 and 2020 due to negative earnings. In profitable years, the ratio demonstrated an upward shift from 12.46 in 2018 to 16.99 in 2019, despite a concurrent decline in both share price and EPS. By 2021, the P/E ratio settled at 16.91, reflecting a valuation that remained consistent with 2019 levels even as share prices and earnings returned to growth.

The financial data from 2017 through 2021 reveals significant volatility in both equity valuation and operational profitability. The share price fluctuated considerably, reaching a low of 10.25 US$ in 2019 before ascending to a period high of 21.89 US$ by the end of 2021. This price movement coincided with unstable operating results, characterized by alternating periods of profitability and loss.

Operating Profitability Trends

Operating profit per share exhibited extreme variance, recording negative values in 2017 (-0.16 US$) and 2020 (-1.50 US$). Positive earnings were observed in 2018 (2.04 US$), 2019 (0.80 US$), and 2021 (1.79 US$). The sharp decline in 2020 represents a significant operational contraction, while the 2021 recovery indicates a return to positive earnings capacity.

Price to Operating Profit (P/OP) Analysis

The P/OP ratio was not applicable in 2017 and 2020 due to negative operating profits. In 2018, the ratio stood at 8.19, reflecting a relatively low multiple. By 2019, the ratio expanded to 12.83; notably, this increase occurred despite a decrease in share price, indicating that the decline in operating profit per share was more pronounced than the decline in market valuation. By 2021, the ratio stabilized at 12.23 as both the share price and operating profit recovered.

Valuation Correlation

A divergent relationship is observed between price and profit in the middle of the period, while a convergent recovery is evident in 2021. The expansion of the P/OP multiple in 2019 suggests that the market maintained higher valuation expectations relative to the immediate decline in operating performance. The final observed ratio of 12.23 in 2021 suggests a valuation baseline that is higher than the 2018 level, reflecting a shift in the market's pricing of operating profits.

The valuation of the common stock relative to sales exhibited significant volatility between 2017 and 2021, characterized by a mid-period contraction followed by a recovery to historical levels.

Price to Sales (P/S) Ratio Trend

A downward trajectory in the P/S ratio was observed from 2017 to 2019, declining from 2.95 to a period low of 1.61. This compression suggests that the market's valuation of each dollar of sales decreased during this timeframe. However, a sharp reversal occurred in 2020, with the ratio ascending to 2.84 and remaining nearly flat at 2.86 in 2021, effectively returning the valuation multiple to 2017 levels.

Sales per Share Performance

Revenue per share demonstrated substantial fluctuations, peaking at 7.66 in 2021 after a severe contraction in 2020, where it reached a five-year low of 3.92. The recovery in 2021 represents a nearly 95% increase in sales per share compared to the previous year, indicating a strong rebound in top-line performance.

Correlation Between Price and Sales

The P/S ratio spike in 2020 is particularly notable as it occurred while sales per share were at their lowest point, indicating that the share price did not decline proportionally to the loss in revenue. By 2021, the simultaneous increase in both share price to 21.89 and sales per share to 7.66 resulted in a stabilized P/S ratio, suggesting that the market valuation expanded in tandem with the recovery of fundamental sales performance.

The analysis of the Price to Book Value (P/BV) ratio from 2017 to 2021 reveals significant volatility in market valuation relative to the company's accounting value. While the underlying book value per share remained relatively stable, the market price fluctuated considerably, causing the P/BV ratio to transition from a premium to a discount and then to a substantial premium.

Share Price Volatility

The share price exhibited a non-linear trend, increasing from 15.18 US$ in 2017 to 16.68 US$ in 2018, followed by a sharp decline to 10.25 US$ in 2019. A recovery trend began in 2020 and accelerated significantly in 2021, reaching a peak of 21.89 US$.

Book Value per Share (BVPS) Trends

The BVPS showed comparative stability throughout the period. It grew from 13.78 US$ in 2017 to a peak of 15.27 US$ in 2019, experienced a dip to 13.38 US$ in 2020, and subsequently recovered to 14.62 US$ by the end of 2021.

P/BV Ratio Interpretation

The P/BV ratio mirrored the movements of the share price. The stock traded at a slight premium in 2017 (1.10) and 2018 (1.13), but shifted to a discount in 2019 (0.67) and 2020 (0.83), where the market price fell below the accounting value. By December 31, 2021, the ratio rose to 1.50, indicating a strong market premium over the book value.