Why EQT’s Valuation Looks Fragile As Natural Gas Slides

EQT Corp (NYSE: EQT) is back in the spotlight—but not the way investors hoped. Shares of the largest natural gas producer in the U.S. tumbled nearly 12% over the past five days, sharply underperforming the broader energy sector. The main culprit? A 7% drop in natural gas futures, triggered by forecasts of cooler-than-expected weather, elevated storage levels, and ongoing production strength. While EQT’s Q2 2025 earnings beat on EPS, the company missed on revenue, and pipeline bottlenecks combined with limited hedging left it exposed to price volatility—dampening the upside from $340 million in free cash flow.

Natural gas producers like EQT are highly sensitive to commodity swings, and when prices fall, their stocks tend to drop fast. EQT’s decline was among the steepest in the sector. Peers like Coterra Energy (NYSE: CTRA) and Expand Energy (NASDAQ: EXE) slid by 3% and 9%, respectively, but EQT’s exposure to spot prices and pipeline constraints amplified the selloff. That said, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P and clocked >91% returns since inception.

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Why the Drop? A Perfect Storm for Natural Gas

Three key factors drove the sharp decline in natural gas prices. First, record-high U.S. production and larger-than-expected storage injections pointed to a growing supply glut. Second, milder-than-normal weather forecasts reduced expectations for power-sector demand. Third, weaker global LNG demand—particularly from Asia and Europe—meant more gas remained trapped in the domestic market. This combination of oversupply, softening demand, and bearish sentiment in the futures market created a perfect storm, sending prices lower and dragging EQT stock down with them.

Valuation: EQT Looks Pricey

Its price-to-sales ratio stands at 4.2x, above the S&P 500’s 3.1x, while its price-to-free cash flow comes in at 26.8x versus 20.9x for the index. Additionally, EQT’s price-to-earnings ratio is 27.4x compared to 26.9x for the broader market. These elevated multiples suggest the stock is priced at a premium—an increasingly tough sell given the heightened volatility in natural gas prices and the cyclical nature of the energy sector.

Growth: A Bright Spot, but Risks Remain

EQT’s strongest case lies in its growth story. The company has delivered impressive top-line expansion, with average revenue growth of 6.4% over the past three years, outpacing the S&P 500’s 5.5%. Over the last twelve months, revenue surged 39.6%, rising from $4.5 billion to $6.3 billion. Most strikingly, quarterly revenue jumped 170% year-over-year, from $952 million to $2.6 billion. These gains are hard to overlook—but they raise the question of sustainability if natural gas prices stay weak.

On the profitability front, EQT shows a mixed profile. Its operating margin of 21.6% is solid, and its operating cash flow margin of 53.9% far exceeds the S&P 500 average of 14.9%, highlighting the strength of its core business. However, the net income margin sits at just 5.8%, well below the S&P’s 11.6%, reflecting the drag from high depreciation, hedging costs, and other non-cash charges.

The company’s balance sheet is where red flags emerge. EQT holds $8.3 billion in debt against a $34 billion market cap, resulting in a moderate debt-to-equity ratio of 24.4%, higher than the S&P 500’s 19.4%. More concerning is the company’s limited liquidity—just $555 million in cash on $40 billion in total assets, translating to a weak cash-to-assets ratio of 1.4%. That kind of thin cash cushion could pose challenges in a downturn or if gas prices remain under pressure.

How Resilient Is EQT in a Crash?

EQT has historically underperformed in market downturns, often falling harder and recovering more slowly than the broader market. It dropped 43% during the 2022 inflation shock (vs. 25.4% for the S&P 500), 54.5% in the 2020 COVID crash (vs. 33.9%), and 69.5% in the 2008 financial crisis (vs. 56.8%), taking nearly five years to recover from the latter. The pattern highlights EQT’s vulnerability in times of market stress.

A Smarter Way to Play the Market

EQT delivers strong growth and cash flow, but its weak balance sheet, average profitability, and poor performance in downturns raise red flags. Given its premium valuation and sensitivity to gas prices, the stock carries significant downside risk despite its upside potential. Investing in a single stock can be risky. You could explore 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 produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

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