Q: Southern Energy seems to be surging lately, is this warranted? Does it look good for a long term hold?
5i Research Answer:
SOU is a small name ($60.5M market cap) and so it will exhibit more volatility than larger energy names. It does not pay a dividend and instead reinvests a lot of its cash for growth. It has low levels of debt, good margins, a cheap valuation of 4.5X P/E, a strong balance sheet, and good revenue growth. Natural gas prices have been climbing back a bit recently, and we feel that this is part of the reason for the snapback in SOU's price. For an investor with a constructive outlook on oil and gas, we feel that this name looks attractive here, while being mindful of position sizing, small-cap risks, and volatility within the name.