What's Happening With EQT Stock?

Forbes

25-07-2025

Photo byEQT Corp (NYSE: EQT) has re-entered the limelight—but not in the manner investors desired. Shares of the most significant natural gas producer in the U.S. plummeted nearly 12% over the past five days, significantly trailing the broader energy sector. The primary reason? A 7% decrease in natural gas futures, driven by predictions of cooler-than-anticipated weather, high storage levels, and consistent production strength. Although EQT's Q2 2025 earnings exceeded expectations on EPS, the company fell short on revenue, and pipeline bottlenecks along with limited hedging left it vulnerable to price fluctuations—reducing the upside from $340 million in free cash flow.
Natural gas producers such as EQT are extremely responsive to commodity fluctuations, and when prices drop, their stock prices often decline rapidly. EQT's decrease was one of the steepest in the sector. Competitors like Coterra Energy (NYSE: CTRA) and Expand Energy (NASDAQ: EXE) fell by 3% and 9%, respectively, but EQT's exposure to spot prices and pipeline limitations exacerbated the selloff. Nonetheless, if you seek upside with a smoother journey than investing in individual stocks, consider the High Quality portfolio, which has outperformed the S&P and achieved >91% returns since its inception.
What Caused the Decline? A Perfect Storm for Natural Gas
Three major factors contributed to the steep drop in natural gas prices. Firstly, record-breaking U.S. production coupled with larger-than-anticipated storage injections indicated a growing supply surplus. Secondly, predictions of milder-than-usual weather diminished expectations for power-sector demand. Thirdly, reduced global LNG demand—especially from Asia and Europe—resulted in more gas being confined to the domestic market. This mixture of oversupply, weakening demand, and negative sentiment in the futures market created a perfect storm, leading to lower prices and dragging EQT stock down alongside them.
Valuation: EQT Appears Expensive
Its price-to-sales ratio is at 4.2x, higher than the S&P 500's 3.1x, while its price-to-free cash flow stands at 26.8x compared to the index's 20.9x. Additionally, EQT's price-to-earnings ratio is 27.4x, in contrast to the 26.9x for the wider market. These heightened multiples indicate that the stock is priced at a premium—an increasingly difficult proposition given the increased volatility in natural gas prices and the cyclical characteristics of the energy sector.
Growth: A Positive Aspect, but Risks Persist
EQT's strongest argument resides in its growth trajectory. The firm has demonstrated notable top-line expansion, with average revenue growth of 6.4% over the last three years, surpassing the S&P 500's 5.5%. Over the past year, revenue skyrocketed 39.6%, increasing from $4.5 billion to $6.3 billion. Most impressively, quarterly revenue surged 170% year-over-year, jumping from $952 million to $2.6 billion. These achievements are hard to ignore—but they bring up the question of sustainability if natural gas prices remain low.
On the profitability side, EQT presents a mixed picture. Its operating margin of 21.6% is strong, and its operating cash flow margin of 53.9% significantly exceeds the S&P 500 average of 14.9%, underscoring the robustness of its core operations. However, the net income margin is only 5.8%, considerably lower than the S&P's 11.6%, reflecting the burden from high depreciation, hedging costs, and other non-cash expenses.
The company's balance sheet reveals some concerning signals. EQT carries $8.3 billion in debt against a $34 billion market capitalization, resulting in a moderate debt-to-equity ratio of 24.4%, which is above the S&P 500's 19.4%. More worryingly, the company's liquidity is limited—holding only $555 million in cash on $40 billion in total assets, leading to a weak cash-to-assets ratio of 1.4%. That kind of thin cash reserve could present challenges during a downturn or if gas prices continue to face pressure.
How Resistant Is EQT in a Crisis?
EQT has historically lagged during market downturns, frequently declining more sharply and recovering more slowly than the wider market. It dropped 43% during the 2022 inflation shock (compared to 25.4% for the S&P 500), 54.5% in the 2020 COVID crash (versus 33.9%), and 69.5% in the 2008 financial crisis (against 56.8%), taking almost five years to recover from the latter. This pattern underscores EQT's susceptibility during periods of market stress.
A Smarter Strategy for Engaging with the Market
EQT showcases impressive growth and cash flow, but its weak balance sheet, mediocre profitability, and subpar performance in downturns raise concerns. Given its premium valuation and susceptibility to gas prices, the stock carries considerable downside risk despite its potential for upside. Investing in a single stock can be hazardous. You may want to consider the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to deliver strong returns for investors. How is this possible? The quarterly rebalanced mixture of large-, mid- and small-cap RV Portfolio stocks offered an adaptive approach to maximize opportunities during favorable market conditions while mitigating losses when markets decline, as outlined in RV Portfolio performance metrics.