Diamondback Energy Ready to Breakout?

Diamondback Energy Inc. (FANG) is an independent oil and gas producer in the United States. The company operates exclusively in the Permian Basin. At the end of 2020, the company reported net proven reserves of 1.3 billion barrels of oil equivalent.

The company has recently been active in building its asset base in the Permian Basin. Plus, FANG just announced it closed a deal to acquire QEP resources and Guidon Operating LLC. This should help the company consolidate its assets in the Midland Basin. Its oil production should increase along with higher prices this year.

While its cash of $121 million as of the end of the first quarter is low, its short-term debt is not much higher at $191 million. In terms of growth, FANG has generated an average of 48.2% sales growth over the past five years. Sales are expected to rise 117.7% year over year this quarter, while earnings are forecasted to soar 1,273.3%.

The company is undervalued with a forward P/E of only 9.57, even though its stock is up 67.2% year to date. This has led to a Momentum Grade of A in our POWR Ratings system and reflected in the chart below.

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Take a look at the 1-year chart of FANG below with added notations:

 Chart of FANG provided by TradingView

FANG ran up nicely from its November low, but the stock has recently hit a wall at the $88 level (red). That barrier is also preventing the stock from hitting new 52-week highs.

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A solid close above that $88 mark should lead to much higher prices for the stock. The possible long position on the stock would be on a breakout above that level with a protective stop placed under it.

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Christian Tharp, CMT

FANG shares rose $2.33 (+2.91%) in premarket trading Tuesday. Year-to-date, FANG has gained 71.87%, versus a 13.25% rise in the benchmark S&P 500 index during the same period.

About the Author: Christian Tharp

I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing. More…

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