Scorpio Tankers currently trades at $77.36 and has been a dream stock for shareholders. It’s returned 327% since April 2021, blowing past the S&P 500’s 70.3% gain. The company has also beaten the index over the past six months as its stock price is up 28.1% thanks to its solid quarterly results.
Is there a buying opportunity in Scorpio Tankers, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Scorpio Tankers Not Exciting?
We’re happy investors have made money, but we're swiping left on Scorpio Tankers for now. Here are three reasons you should be careful with STNG and a stock we'd rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Scorpio Tankers struggled to consistently increase demand as its $901.3 million of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and signals it’s a lower quality business.
2. Decline in total vessels Points to Weak Demand
Revenue growth can be broken down into changes in price and volume (for companies like Scorpio Tankers, our preferred volume metric is total vessels). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Scorpio Tankers’s total vessels came in at 96.5 in the latest quarter, and over the last two years, averaged 7.8% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Scorpio Tankers might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability. 
3. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Scorpio Tankers, its EPS declined by more than its revenue over the last two years, dropping 26.5%. This tells us the company struggled to adjust to shrinking demand.
Final Judgment
Scorpio Tankers isn’t a terrible business, but it doesn’t pass our bar. With its shares beating the market recently, the stock trades at 8.9× forward P/E (or $77.36 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. Let us point you toward the Amazon and PayPal of Latin America.
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