Petrobras: Is It A Risky Investment?

With shares of Petrobras (NYSE:PBR) trading around $18, is PBR an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Petrobras is a Brazil-based integrated oil and gas company. The company divides its activities into six segments: Exploration and Production; Provision; Gas and Energy; Biofuel; Distribution, and International. Petrobras is engaged in the research, extraction, refining, processing, trade and transport of oil from wells, shale and other rocks, its derivatives, natural gas and other liquid hydrocarbons, as well as in activities related to energy, development, production, transport, distribution and commercialization of energy. It is active in Brazil and in 24 countries abroad, with projects situated on five continents. Petrobras is a mass producer in the energy industry that is poised to provide the products that consumers and businesses require.

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T = Technicals on the Stock Chart are Weak

Petrobras stock has seen a consistent downtrend over the last several years. The stock is now trading near multi-year lows. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Petrobras is trading around its key averages which signal neutral price action in the near-term.


(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Petrobras options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Petrobras Options




What does this mean? This means that investors or traders are buying a very low amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options



July Options



As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very low amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Petrobras’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Petrobras look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction





Petrobras has seen mostly decreasing earnings and revenue figures over the last four quarters. From these figures, the markets have not been too happy with Petrobras’s recent earnings announcements.

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P = Poor Relative Performance Versus Peers and Sector

How has Petrobras stock done relative to its peers, BP (NYSE:BP), Royal Dutch Shell (NYSE:RDS), Exxon Mobil (NYSE:XOM), and sector?



Royal Dutch Shell

Exxon Mobil


Year-to-Date Return






Petrobras has been a relatively weak performer, year-to-date.


Petrobras provides essential energy products and services to growing populations, industries, and economies around the world. The stock has not done too well in recent times, in fact, it is currently trading near multi-year lows. Earnings and revenue figures have been decreasing over recent quarters so investors in the stock have not been pleased. Relative to its peers and sector, Petrobras has trailed significantly in year-to-date performance. STAY AWAY from Petrobras stock for now.

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