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Seadrill Ltd (SDRL): Is Petrobras Argentina SA ADR (PZE) Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Petrobras Argentina SA ADR (NYSE:PZE) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR)

What we’re looking for
The graphs you’re about to see tell Petrobras Argentina SA ADR (NYSE:PZE)’s story, and we’ll be grading the quality of that story in several ways:

  • Growth: are profits, margins, and free cash flow all increasing?
  • Valuation: is share price growing in line with earnings per share?
  • Opportunities: is return on equity increasing while debt to equity declines?
  • Dividends: are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at Petrobras Argentina SA ADR (NYSE:PZE)’s key statistics:

PBR Total Return Price Chart

PBR Total Return Price data by YCharts

Passing Criteria 3-Year* Change Grade
Revenue growth > 30% 37.4% Pass
Improving profit margin (41.5%) Fail
Free cash flow growth > Net income growth 210.7% vs. (19.6%) Pass
Improving EPS (45.7%) Fail
Stock growth (+ 15%) < EPS growth (54.5%) vs. (45.7%) Pass

Source: YCharts. * Period begins at end of Q2 2010.

PBR Return on Equity Chart

PBR Return on Equity data by YCharts

Passing Criteria 3-Year* Change Grade
Improving return on equity (71.2%) Fail
Declining debt to equity 11.4% Fail
Dividend growth > 25% (30%) Fail
Free cash flow payout ratio < 50% 11.1% Pass

Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we’re going
Petrobras Argentina SA ADR (NYSE:PZE) earns a middling four out of nine passing grades, and one of those passing grades was essentially a technicality — Petrobras’ EPS have declined less than its share price. Despite promising revenue growth over the past three years, Petrobras Argentina SA ADR (NYSE:PZE)’s margins have collapsed due to high operational expenses, the effects of which have been compounded by share dilution. Will Petrobras Argentina SA ADR (NYSE:PZE) be able to turn these weaknesses around and rebound, or is it just drilling a dry hole for investors? Let’s dig a little deeper to see what the future may hold.