An Insider Bought Shares of Ultra Petroleum

We can compare Ultra to other natural gas and oil producers including Chesapeake Energy Corporation (NYSE:CHK), SandRidge Energy Inc. (NYSE:SD), Southwestern Energy Company (NYSE:SWN), and Devon Energy Corp (NYSE:DVN). Chesapeake and SandRidge have been hit by management issues in the last year, with Chesapeake’s CEO recently stepping down and activists targeting SandRidge’s management as well; both companies- and likely Ultra as well- overextended themselves and were unprepared for a fall in natural gas prices. Currently, Chesapeake’s forward P/E is 11 as analysts expect the company to recover (its recent earnings report beat expectations but was still down from a year earlier). SandRidge is expected to be unprofitable both this year and next year. Both stocks are also popular short targets.

The sell-side is similarly optimistic about the prospects of Southwestern and Devon, with forward earnings multiples less than 20 in each case. Devon actually experienced a decline in revenue last quarter compared to the fourth quarter of 2011, while Southwestern’s product sales were up only slightly. Of course commodity prices would be the leading cause of any recovery at these companies, though we are skeptical that they are good buys based on where they trade even in comparison to a normally optimistic Street. We would note that short interest is considerably lower at Southwestern and Devon than the three companies we’ve discussed.

Even assuming a rise in natural gas prices (which, to some extent, should occur eventually as the U.S. builds out export capacity), we’re uncertain that this is a good insider purchase to imitate. A number of other companies are in a similar situation to Ultra, and in particular Chesapeake seems that has reacted well by selling off assets. Certainly the current environment leads us to avoid the industry, and even down the line Ultra might not be as good a buy as its peers.

Disclosure: I own no shares of any stocks mentioned in this article.