Comstock Resources: Cheap on Cash Flow, Pricey on the Earnings That Matter

Comstock Resources looks like the kind of battered value name a cash-flow hunter puts on the watch list. The Louisiana natural-gas driller is down roughly 36% this year near $14.78, nearly half off its 52-week high, and on the multiple gas investors check first — enterprise value to EBITDA — it screens around 5.9x, cheaper than peers Antero (about 6.2x) and Range (about 6.7x). Cheap on cash flow, by the headline number.

But a second reading of the same company points the other way. In the second quarter Comstock booked $332 million of sales and came away with net income of $8.8 million — three cents a share, a wide miss against the roughly 33 cents analysts had expected. One business, two cash-flow stories: about 6x EBITDA on one side, effectively no earnings on the other. The gap between those two readings is the whole investment question.

Why one company reads cheap and expensive at once

The reason, simply, is that EBITDA and operating cash flow are numbers that stop before the money is spent. Comstock generated about $245 million of adjusted EBITDAX in the quarter and roughly $189 million of operating cash flow before working-capital swings. Then it spent about $390 million on drilling in the same three months. The business produced far less than it plowed back into the ground, and free cash flow over the last twelve months came in deeply negative, around minus $735 million.

The earnings side collapses for a parallel reason. Natural-gas shale carries heavy non-cash depreciation as each well depletes, and the company pays interest on roughly $3.1 billion of debt. Add those to the mix and GAAP income shrinks toward zero even as cash is gushing through the income statement's top half.

This is not an accident. Management added back three drilling rigs in 2025 specifically to grow output through 2026 and 2027, and second-quarter production of 113.1 Bcfe was up 16% from the first quarter. The cash-flow cheapness is a growth program wearing a discount tag: the low multiple is not a discount to value sitting in the shareholders' pocket, but the fuel being spent to drill more wells.

How debt, a midstream sale, and a thin dividend fill the gap

Because the cash engine can't cover the drilling bill, the gap has to come from somewhere, and this is where the balance sheet does the real talking. Net debt sits near $3.05 billion against a market value of about $4.34 billion — roughly 70 cents of net debt for every dollar of equity. That is a leveraged posture for a gas pure-play, and it's a big part of why the stock is down a third this year.

Comstock has also been leaning on asset sales instead of core borrowing. In June it sold a 27% stake in its midstream subsidiary, Pinnacle Gas Services, to Sixth Street funds for $600 million, keeping a 73% controlling interest valued around $1.6 billion. That is an equity infusion into a subsidiary to raise cash, not a sign of surplus.

The dividend tells the same story in miniature. At $0.125 a quarter the forward yield is around 3.4%, but in a quarter where free cash flow ran to roughly a $200 million deficit, that payout is being funded from the balance sheet and borrowings rather than from cash the business actually earned.

The macro that decides whether the cheapness is real

The entire read turns on natural gas prices. The EIA's July outlook has U.S. storage heading into winter, on October 31, at 3,969 Bcf — about 5% above the prior five-year average. That is a comfortable cushion, not a tight market. Against that backdrop Comstock realized $2.93 per Mcfe last quarter after hedging, roughly in line with a Henry Hub environment that the EIA has penciled near $3.50 for the year.

At those prices, even Comstock's low-cost rock — total production costs near $0.77 per Mcfe and an operating margin around 70% — can make a profit on every unit it sells. What it cannot do is both fund the growth program and return value to shareholders at the same time. The accounting is profitable at the wellhead; the business is not yet self-funding.

The judgment

While it's true that Comstock is genuinely cheap on EBITDA and cash flow relative to its peers, I would argue that cheapness is largely a mirage for the owner. The bridge from EBITDA to operating cash flow to free cash flow empties out almost entirely before it reaches the shareholder, because a deliberate, debt-aided growth program converts the cash into more wells rather than into net income or accumulating surplus. On the measure that actually funds an owner — free cash flow and forward earnings — the stock is not cheap at all; it's a modestly leveraged bet that gas prices keep recovering.

The cheap multiple on cash flow only becomes real value if one of two things happens: Comstock decides to live within cash flow, cutting capital spending until free cash flow turns positive and rebuilds the balance sheet, or natural gas realizes high enough to cover both the drilling bill and the shareholder. Until that conversion happens, the stock is less "cheap on cash flow" than it is "expensive on the earnings and free cash flow that matter." A low EBITDA multiple is only cheap after the cash flow it prices actually reaches the people who own the company.