Critical Analysis: Diversified Energy (NYSE:DEC) versus Epsilon Energy (NASDAQ:EPSN)

Epsilon Energy (NASDAQ:EPSN) and Diversified Energy (NYSE:DEC) are both small-cap energy companies, but which is the superior investment? We will contrast the two companies based on the strength of their profitability, institutional ownership, risk, dividends, analyst recommendations, earnings and valuation.

Analyst Recommendations

This is a breakdown of current ratings and target prices for Epsilon Energy and Diversified Energy, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Epsilon Energy	0	1	0	0	2.00
Diversified Energy	0	3	7	0	2.70

Diversified Energy has a consensus target price of $22.50, indicating a potential upside of 62.53%. Given Diversified Energy’s stronger consensus rating and higher possible upside, analysts plainly believe Diversified Energy is more favorable than Epsilon Energy.

Volatility and Risk

Epsilon Energy has a beta of -0.06, indicating that its share price is 106% less volatile than the S&P 500. Comparatively, Diversified Energy has a beta of -0.28, indicating that its share price is 128% less volatile than the S&P 500.

Dividends

Epsilon Energy pays an annual dividend of $0.25 per share and has a dividend yield of 4.2%. Diversified Energy pays an annual dividend of $1.16 per share and has a dividend yield of 8.4%. Epsilon Energy pays out -119.0% of its earnings in the form of a dividend. Diversified Energy pays out 35.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Profitability

This table compares Epsilon Energy and Diversified Energy’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Epsilon Energy	-3.77%	5.56%	3.26%
Diversified Energy	N/A	N/A	N/A

Insider & Institutional Ownership

60.3% of Epsilon Energy shares are owned by institutional investors. Comparatively, 26.5% of Diversified Energy shares are owned by institutional investors. 28.4% of Epsilon Energy shares are owned by insiders. Comparatively, 2.9% of Diversified Energy shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Valuation and Earnings

This table compares Epsilon Energy and Diversified Energy”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Epsilon Energy	$51.59 million	3.49	-$5.80 million	($0.21)	-28.33
Diversified Energy	$1.83 billion	0.54	$341.11 million	$3.23	4.29

Diversified Energy has higher revenue and earnings than Epsilon Energy. Epsilon Energy is trading at a lower price-to-earnings ratio than Diversified Energy, indicating that it is currently the more affordable of the two stocks.

Summary

Diversified Energy beats Epsilon Energy on 9 of the 16 factors compared between the two stocks.

About Epsilon Energy

Epsilon Energy Ltd., a North American onshore independent natural gas and oil company, engages in the acquisition, development, gathering, and production of natural oil and gas reserves in the United States. The company operates through Upstream and Gathering System segments. It has natural gas production in the Marcellus Shale in Pennsylvania; and oil, natural gas liquids, and natural gas production in the Permian Basin in Texas and New Mexico, and Anadarko Basin in Oklahoma. Epsilon Energy Ltd. was incorporated in 2005 and is based in Calgary, Canada.

About Diversified Energy

Diversified Energy Company PLC operates as an independent owner and operator of producing natural gas and oil wells primarily in the Appalachian Basin of the United States. The company is involved in the production, marketing, and transportation of natural gas, natural gas liquids, crude oil, and condensates. Its assets consist of natural gas wells and gathering systems located in the states of Tennessee, Kentucky, Virginia, West Virginia, Ohio, Pennsylvania, Oklahoma, Texas, and Louisiana. The company was formerly known as Diversified Gas & Oil PLC and changed its name to Diversified Energy Company PLC in May 2021. Diversified Energy Company PLC was founded in 2001 and is headquartered in Birmingham, Alabama.