We came across a bullish thesis on PHX Minerals Inc. (NYSE:PHX) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on PHX. PHX Minerals Inc. (NYSE:PHX)’s share was trading at $4 as of Dec 31st. PHX’s trailing and forward P/E were 30.77 and 13.33 respectively according to Yahoo Finance.
Aerial view of a natural gas production facility with travelling pipelines extending from it.
The natural gas market has seen renewed interest, driven by geopolitical and climatic factors. Following the Ukraine War, Europe’s reliance on natural gas was tested, but warm winters provided a reprieve. This year, however, Europe could face its first cold winter in three years, rapidly depleting gas reserves and driving Dutch TTF prices to double off February lows, with Henry Hub prices rising over 50% in the past six months. As forward prices adjust upward, natural gas producers are positioned to lock in hedges that secure profitability for years, capitalizing on the shift from a two-year bear market.
Amid this backdrop, PHX Minerals (NYSE:PHX) stands out as a compelling small-cap natural gas play. Unlike typical mineral rights companies that scatter investments across regions, PHX strategically concentrates its purchases using geologists and former operator executives to identify high-potential parcels. This approach has yielded impressive results, with production volumes increasing 10% year-over-year despite historically low commodity prices. With 80% of volumes in natural gas, PHX is poised to benefit from heightened winter demand, new export terminal activity, and the energy needs of AI-driven electricity consumption. Insider buying from both the CEO and CFO underscores strong management alignment, with the latter’s investment lending further credibility to PHX’s growth potential.
Since 2020, PHX has achieved remarkable growth, with production volumes rising 28% annually and reserves expanding by 36% annually. This success stems from its nimbleness in executing small acquisitions—86 deals averaging $1.6 million each—enabling higher returns compared to larger competitors. The company has also demonstrated financial prudence, maintaining dividends and retiring 15% of its debt despite challenging market conditions. Recent management moves, including relocating headquarters to Houston, highlight its focus on capturing deal flow and enhancing operational efficiency.
At $3.97, PHX trades at a steep discount to its estimated $6.59/share value based on current prices and $10.02/share at $80 crude and $5 natural gas. Haynesville activity has picked up, with rig counts, permits, and well completions all trending upward. PHX’s stock has rallied from August lows, driven by improving fundamentals rather than speculative moves, and remains underpriced relative to the commodity’s trajectory. While small caps can exhibit inefficiency, PHX’s robust reserve growth, aligned leadership, and favorable macro tailwinds present a unique opportunity. For investors seeking exposure to natural gas with high growth potential and disciplined management, PHX offers a rare blend of value and upside.
PHX Minerals Inc. (NYSE:PHX) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 4 hedge fund portfolios held PHX at the end of the third quarter which was 4 in the previous quarter. While we acknowledge the risk and potential of PHX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PHX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.