Calumet has been on fire lately. In the past six months alone, the company’s stock price has rocketed 61.1%, reaching $32.21 per share. This run-up might have investors contemplating their next move.
Is there a buying opportunity in Calumet, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Calumet Will Underperform?
We’re glad investors have benefited from the price increase, but we're cautious about Calumet. Here are three reasons there are better opportunities than CLMT and a stock we'd rather own.
1. Long-Term Revenue Growth Shows Momentum
Cyclical sectors like Energy often flatter weaker operators during favorable price environments, but a longer-term lens separates those from businesses that can consistently perform across market cycles. Over the last five years, Calumet grew its sales at a decent 12.8% compounded annual growth rate. Its growth was slightly above the average energy upstream and integrated energy company and shows its offerings resonate with customers.
2. Low Gross Margin Reveals Weak Structural Profitability
While energy gross margins can be distorted by commodity prices, hedging, and short-term cost swings, sustained margins across a full cycle reflect a producer’s underlying asset quality, infrastructure position, and cost structure.
Calumet, which averaged 7.8% gross margin over the last five years, exhibiting bottom-tier unit economics in the sector. It means the company will struggle at higher commodity prices than peers with better gross margins. 
3. High Debt Levels Increase Risk
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Calumet’s $2.23 billion of debt exceeds the $205.1 million of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $293.3 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Calumet could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope Calumet can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
Calumet doesn’t pass our quality test. After the recent surge, the stock trades at 11.8× forward EV-to-EBITDA (or $32.21 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better stocks to buy right now. We’d suggest looking at a top digital advertising platform riding the creator economy.
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