Shares in Houston-based Tellurian (NYSEAMERICAN:TELL) have been riding the natural gas wave. Since mid-August, TELL stock has posted a 65% gain. It’s more than tripled its share price since the start of the year. However, despite rallying for the better part of three months, it remains well off its high close of $5.32 in June. So, is this a natural gas stock to buy? Or is Tellurian’s rally likely to come to an end? If the market reaction to the company’s third-quarter earnings report on Nov. 3 is any indicator, TELL stock will continue to roll.
At its heart, the Tellurian stock story in 2021 is about the rising demand — and price — of natural gas. But it’s not quite that simple. It also involves a charismatic cofounder who’s seen as something of an LNG (liquified natural gas) guru. There is more than a whiff of meme stock action. And the company is facing a very capital-intensive LNG production project in its quest to become a global natural gas supplier.
Here’s what you need to know about this Portfolio Grader “B” rated stock.
Tellurian Reports Q3 Earnings
On Wednesday, Tellurian reported its Q3 earnings. The company delivered a diluted net loss of 4 cents per share for the quarter. Natural gas revenue for the quarter was $15.6 million, up 114% year-over-year.
The big story is that it has now signed deals for three million tones per annum of LNG from its yet-to-be-built Driftwood LNG plant. It has nearly $211 million in cash and equivalents with no borrowing obligations. The company also reports it has brought production online from two new natural gas wells. The company’s CEO Octávio Simões noted:
“We have turned our focus to financing Driftwood LNG and plan to give Bechtel notice to proceed with construction in early 2022.”
Natural Gas Has Come Back From the Dead
The catalyst behind the big movement in TELL stock is the rapid rise in the price of natural gas. In 2020, the pandemic triggered an historic drop in the price of natural gas. Investors grew impatient with Tellurian and punished its stock.
This fall saw a turnaround, with natural gas prices surging. Better yet — for a company like Tellurian that is focused on the export market — prices have been rising more sharply in Europe and Asia than in the U.S., helping to justify the additional cost of LNG production. With natural gas prices now at record highs in those overseas markets, TELL stock has been on the move.
Heavy Reliance on Founders’ Story… And Memes
One of the factors to be aware of when looking at Tellurian is the key role played by cofounder Charif Souki. He is considered a pioneer in the American LNG industry. In a previous venture, he built the county’s second-largest LNG export terminal, and leapfrogged his company past a list of U.S. multinational energy companies in the process. This fall, he was given the United States Energy Award by the United States Energy Association for his positive contributions to the industry.
Tellurian may not have its LNG production facility built. The company may be seemingly perpetually in search of financing to build it — to the point where investors grew fidgety. But overall, Souki’s proven experience is a huge selling point that adds considerable value to TELL stock.
Another variable to be aware of is TELL’s meme stock status. Charif Souki is not shy about sharing his thoughts on social media and he frequently posts video updates. That use of social media has endeared Souki and Tellurian to meme stock investors.
Be aware that this has the potential to introduce short-term volatility TELL stock.
Bottom Line on TELL Stock
The market clearly liked what it saw from Tellurian’s third quarter. TELL stock ended up closing the day at $4.30, a 7.3% pop. This is a stock that has significant growth potential. Tellurian still has to build its Driftwood LNG facility, but if it can pull that off — and cofounder Charif Souki has proven track record there — it could be delivering solid returns to your portfolio for years.
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