With the slide in crude oil prices, you may think it’s too late to buy Marathon Oil (NYSE:MRO). It was the stunning recovery in oil prices that fueled the MRO stock comeback, from around $3.50 per share to around $25 per share, in the span of two years.

Logically, one would take this to mean that a big drop in energy prices will result in a tremendous plunge in the price of this oil exploration company’s shares. But before you decide to hold off buying it, keep two things in mind.

First, don’t read too much into oil’s latest slide. Its latest pullback may end up being temporary. Prices could remain elevated compared to levels seen through most of 2021.

Second, the company has another factor in play that can help move the needle. Put it all together, and it’s clearly not too late to enter a position.

MRO Stock and Oil’s Drop Below $100 per Barrel

Since spiking a month or so ago, due to the Russia sanctions, WTI oil futures have experienced a sharp slide in price. No longer trading at levels not seen since 2008, WTI futures are now back below $100 per barrel. This has, of course, brought the big rallies seen with oil exploration to a halt.

In the case of MRO stock, shares have struggled much further above $25 per share. For investors holding the stock for the past year or two, this isn’t such a big deal. After all, like I mentioned above, it’s up more than 7x since spring 2020. Even if you didn’t get into it until spring 2021, when oil’s recovery was well underway, you’re still up around 122.8%.

But for investors not in it already, I can understand why you may feel like it’s too late. With its move back below $100 per barrel, a move t0 $90 per barrel, or even $80 per barrel may appear to be what’s next.

I’m not going to go into too much detail about the future direction of crude oil prices. I will however, argue that the biggest factor putting pressure on oil prices today may only be short-lived.

An Overreaction to Increased Supply

With Russia’s invasion of Ukraine still underway, and the West (mostly) still cut off from Russian oil, why is crude taking a dip? It’s possible the oil market is overreacting to the prospect of higher oil supply.

To alleviate pain at the pump, the U.S. Federal Government is releasing 180 million barrels of crude oil from its Strategic Petroleum Reserve. U.S. allies plan to release another 60 million barrels from their own reserves. Combined with news of an unexpected buildup in crude inventories, it makes sense that WTI futures have been moving lower.

That said, it’s also possible the market is overreacted to news of increased supply. The amount of petroleum being released by the U.S. and its allies is a drop in bucket compared to daily oil consumption. 100.6 million barrels per day are consumed worldwide. These efforts may ultimately do little to make up for Europe’s loss of access to Russia’s 10.5 million barrels of daily production.

In short, while we may not see a return to its recent high, there’s not a lot to indicate a move back to materially lower oil prices is in store. That’s especially good news for Marathon Oil.

Bottom Line on MRO Stock

As oil remains at elevated levels, Marathon Oil stands to generate a high amount of earnings. Analyst consensus calls for the company to earn around $3.68 per share during 2022. There are two takeaways with this.

Takeaway one: shares are cheap relative to earnings. At today’s prices, the stock trades at a single-digit price-to-earnings (P/E) ratio (6.8x).

Takeaway two: assuming it returns the lion’s share of these earnings to investors in the form of increased dividends and share repurchases, there’s something else in play (besides another run-up for oil) that could move the stock even higher from here.

A highly-profitable company at a more than reasonable price, at around $25 per share, MRO stock is still a buy.

MRO stock earns an “A” rating in my Portfolio Grader.

— Louis Navellier and the InvestorPlace Research Staff

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Source: Investor Place