1 Reason To Avoid Cheniere Energy
With new cases of the coronavirus spiking in the US and worldwide .
With the already historic unemployment levels and job losses in recent months .
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital over time.
And this is huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
Both things are necessary to build wealth. But most only think of investing well.
Today I want to talk about the second part of things that few consider… Staying away from investments where you’ve got a high probability of losing money in.
1 Reason To Avoid Cheniere Energy
It’s Got An Enormous Amount of Debt
Normally in these articles I talk about other things like valuation, profitability, cash flow, the affects coronavirus is having on a company’s financials, and other things.
But frankly none of those matter with Cheniere Energy (LNG) due to its enormous debt load.
As of this writing Cheniere is a $12.4 billion market cap liquefied natural gas terminal operator.
Its most recent quarterly data showed it has $2.4 billion in cash. And it has $31.5 billion in short term and long-term debt and capital leases.
Total liabilities make up 99.4% of its balance sheet.
And its current debt to equity ratio is 148.8.
In other words, it has 154% more debt and capital leases than its entire market cap.
Its debt load is 12.1X higher than its cash levels.
It’s got one of the highest debt to equity ratios I’ve ever seen.
And after subtracting total liabilities from total assets there’s a number near $0. This means after subtracting debt from assets that the stocks equity – the shares you buy on the market – are almost worthless.
I want to invest in safe stocks that will be around for decades to help me build wealth over the long term. This helps insure I lose as little money as possible over time.
Typically, this means I invest in companies that have little to no debt compared to their cash and equity.
For example, I look to invest in companies with a debt to equity ratio below 1… And Cheniere’s is 148.8.
And this still isn’t all…
One major reason it’s got an enormous amount of debt is because of its lack of ability to create free cash flow from its business operations.
Over the last decade the companies produced a total of negative $24.3 billion in free cash flow.
The only way this company has stayed alive to this point is through issuing shares. Issuing debt. And by selling properties.
In 2010 it had 56 million shares outstanding. But as of this writing it has 268 million.
This means its diluted shareholders by 379% in the last decade.
Think of this like a pizza.
When Cheniere issues more shares, the same size of pizza stays… But more people are around to eat it so the piece of pizza you have gets smaller and smaller the more it dilutes shares.
If a company keeps doing this over long periods like Cheniere has, the same size of the pizza remains but eventually you’ll get to eat little to no pizza.
This is bad enough by itself…
But Cheniere’s combined this with a massive increase in its amount of long-term debt over the last decade too.
From $2 to $3 billion in the early 2010’s. To now $30 billion.
Or a 10X increase in long term debt in 10 years.
Just to stay alive and continue operating and expanding Cheniere is diluting shareholders more and more. And issuing ever larger amounts of debt.
This is unsustainable.
Combine this with the ongoing and rapid increase in coronavirus cases worldwide causing massive uncertainty in energy markets worldwide and this makes Cheniere even more dangerous to own.
For these reasons I recommend you stay far away from Cheniere Energy’s enormously risky stock.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.