Has Forum Energy Technologies Found a Winning Formula?

(Continued from Prior Part)

Forum Energy Technologies’ PE trend

Forum Energy Technologies’ (FET) price-to-earnings (or PE) multiple rose sharply in fiscal 2015. Before that, the multiple fluctuated between 2012 and 2014. In 2015, FET’s adjusted earnings fell ~78% compared to fiscal 2014. However, on December 31, 2015, FET’s share price was 40% lower than what it was a year before. A steeper earnings fall relative to share price fall caused significant PE multiple expansion in 2015 over 2014.

In 1Q16, Forum Energy Technologies’ share price rose compared to 4Q15. Its earnings were negative in 1Q16. So, the PE multiple was not meaningful in 1Q16.

Forward PE considers the sell-side analyst consensus estimate of earnings for the next four quarters. Forum Energy Technologies’ forward PE, which reflects analysts’ expectations of net loss over the next four quarters, isn’t available.

Price to cash flow

Forum Energy Technologies’ price to cash flow (or PCF) decreased in the past four years until 2015. During this period, FET’s cash flow from operations rose while its share price fell sharply. So, the PCF multiple decreased. Going forward, analysts expect the company’s PCF to rise, which reflects analysts’ expectations of lower cash flow in the next four quarters.

Forum Energy Technologies’ EV/EBITDA trend

In 1Q16, Forum Energy Technologies’ TTM (or trailing-12-month) EBITDA (or earnings before interest, tax, depreciation, and amortization) was negative. So, its EV/EBITDA multiple was not meaningful. In comparison, Nabors Industries’ (NBR) EV/EBITDA stood at ~7.4x in 1Q16. Forum Energy Technologies makes up 1.4% of the iShares US Oil Equipment & Services ETF (IEZ).

Forum Energy Technologies’ historical valuation, expressed as an EV/EBITDA multiple, was moving in a range between 2012 and 2014 before it fell sharply in 2015. From 2014 to 2015, Forum Energy Technologies’ net debt decreased. FET’s share price also rose during the same period. In effect, enterprise value (or EV), which is approximately the summation of its equity value and net debt, fell in fiscal 2015 compared to a year ago. FET’s EBITDA turned negative in 2015. So, the EV/EBITDA ratio was not meaningful in 2015.

Forward EV/EBITDA considers the sell-side analyst consensus estimate of EBITDA for the fiscal year. Forum Energy Technologies’ forward EV/EBITDA multiple for 2016 is not meaningful. This reflects analysts’ expectation of a negative EBITDA in 2016.

Next, we’ll discuss Forum Energy Technologies’ valuation compared to its industry peers.