2 Reasons to Like XOM (and 1 Not So Much)

ExxonMobil currently trades at $154.29 and has been a dream stock for shareholders. It’s returned 178% since April 2021, nearly tripling the S&P 500’s 64.2% gain. The company has also beaten the index over the past six months as its stock price is up 39.3%.

Is now still a good time to buy XOM? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.

Why Does XOM Stock Spark Debate?

One of the successor companies to John D. Rockefeller's Standard Oil monopoly that was broken up in 1911, ExxonMobil (NYSE:XOM) explores for and produces crude oil and natural gas, refines and sells petroleum products, and manufactures petrochemicals.

Two Positive Attributes:

1. Economies of Scale Give It Negotiating Leverage with Suppliers

In Energy, scale separates fragile single-asset producers from platform-style businesses that generate revenue across entire basins and infrastructure networks.

ExxonMobil’s $332.2 billion of revenue in the last year is top-tier for the industry, suggesting the company has hit a level of diversification where investors can sleep easy at night.

2. Impressive Free Cash Flow Margin Opens Growth Opportunities

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

ExxonMobil has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.6% over the last five years, better than the broader energy upstream and integrated energy sector.

One Reason to be Careful:

Low Gross Margin Hinders Flexibility

In any given year, energy gross margins are heavily influenced by prices, hedging, and cost inflation, but over a full cycle these gross margins reveal which producers are structurally advantaged through superior “rock” quality, infrastructure access, and cost position.

ExxonMobil, which averaged 44.3% gross margin over the last five years, exhibits subpar unit economics in the sector. It means the company will struggle more at lower commodity prices than peers with better gross margins.

Final Judgment

ExxonMobil has huge potential even though it has some open questions, and with its shares beating the market recently, the stock trades at 15.8× forward P/E (or $154.29 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.

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