Scorpio Tankers has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 14.3% to $80 per share while the index has gained 13.9%.
Is now the time to buy Scorpio Tankers, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Scorpio Tankers Not Exciting?
We’re passing on Scorpio Tankers for now. Here are three reasons why there are better opportunities than STNG, plus one stock we’d rather own.
1. Decline in total vessels Points to Weak Demand
Revenue growth can be broken down into changes in price and volume (for companies like Scorpio Tankers, our preferred volume metric is total vessels). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Scorpio Tankers’s total vessels came in at 84.5 in the latest quarter, and over the last two years, averaged 8.8% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Scorpio Tankers might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Scorpio Tankers’s revenue to drop by 25.4%, a decrease from its 14.8% annualized growth for the past five years. This projection doesn’t excite us and suggests its products and services will see some demand headwinds.
3. EPS Took a Dip Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Sadly for Scorpio Tankers, its EPS and revenue declined by 6% and 8.2% annually over the last two years. We’ll keep a close eye on the company as diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Scorpio Tankers’s low margin of safety could leave its stock price susceptible to large downswings.
Final Judgment
Scorpio Tankers isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 11.3× forward P/E (or $80 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re fairly confident there are better stocks to buy right now. We’d suggest looking at one of our all-time favorite software stocks.
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