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There are investors out there who see this market as being in a bubble, or something close. And I’d expect many of those investors would point to Exxon Mobil (NYSE:XOM) stock as “Exhibit A” in their argument.

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After all, many growth stocks that are barely profitable — or not profitable at all — have been bid up relentlessly so far in 2020. Yet XOM stock has lost half its value.

Surely, one of the titans of American industry shouldn’t lose value like that in a “normal” market. That aside, the massive rallies in tech names and other growth stocks are justified by investors supposedly taking the long view. Shouldn’t XOM stock get the same treatment?

After all, crude oil prices have been depressed by the novel coronavirus pandemic. Crude futures, after all, briefly went negative this spring. Oil prices at least are positive now, but they’re still bouncing around multi-year lows.

But that argument misses the point. Yes, there are short-term pressures facing Exxon Mobil. Those aren’t the only pressures, however.

In fact, there’s one core problem for Exxon Mobil: the world has changed. And it’s going to be difficult, if not impossible, for this oil giant to adapt.

The Fundamental Case for XOM Stock

If you look at the numbers, there’s a case to be made for XOM stock.

One number to start with is $40. That’s the current per-barrel price of West Texas Intermediate crude. In 2019, on average, Exxon Mobil realized a price of $56.32 per barrel, according to its Form 10-K filing with the U.S. Securities and Exchange Commission. The year before, it was nearly $63.

The impact on earnings is staggering. Per that filing, a $1 move in the weighted-average realized crude price would increase Exxon’s after-tax profit by $475 million.

That’s about 11 cents per share. So if (or when) crude bounces back, so will Exxon earnings … and in a big way.

The second number is 9.9. That’s the dividend yield generated by XOM stock at the moment (in percentage points, obviously). Meanwhile, management has committed to the payout.

And the two numbers can work together. A rebound in crude prices not only boosts earnings, but it puts the continued speculation about a dividend cut to bed. That means investors keep their income, and XOM stock likely gets a boost as well. In that scenario, Exxon can be a big winner.

Beyond the Numbers

That argument seems to make sense, but I believe it has a critical flaw. It is based on the idea that XOM stock has sold off because crude prices have plunged this year. And that’s simply not the entire story.

After all, Exxon still has a market capitalization around $150 billion. It’s big institutional investors who move the stock — and they’re not selling (or putting off buying) the stock because of the size of the dividend. They’re not selling because oil futures went negative in April, or because WTI crude is at $40 at the moment. If they believed that crude was heading back to $60-plus once normalcy returned, they’d be buying XOM stock with both fists.

They’re not doing that. And I’d bet that’s because a lot of those big investors indeed are taking the long view. That view can be summarized with a simple question: Can Exxon Mobil grow over time?

And increasingly, the answer seems to be “no.” Electric vehicle adoption clearly is going to rise. We’ve seen stocks ranging from manufacturers to suppliers, in the U.S. and elsewhere, simply take off this year. That in turn suggests lower gasoline demand, which pressures Exxon’s upstream (exploration) and downstream (retail) businesses.

Chemical demand probably bounces back to some extent, but there’s a shift away from plastics and other oil derivatives. Even natural gas demand probably goes lower over time thanks to renewable growth.

Growth Without Growth

There really isn’t any part of Exxon Mobil’s business that is untouched by changing demand trends. Those trends didn’t begin in 2020, and they’re not going to end in 2021. If anything, the changes have been accelerated at least in part by the pandemic.

And that’s an enormous problem for XOM stock. It’s not impossible for a stock to grow if demand doesn’t; investors call those cases “melting ice cubes.”

But there haven’t been too many successful melting ice cubes in recent years. And I’d wager there’s never been a melting ice cube with a market capitalization of $150 billion.

Once a business peaks, the stock is going to run into trouble. And so from here, the 2020 trading in XOM stock looks like a realization by the market that the business indeed has peaked. That view suggests that XOM stock has fallen not because investors are distracted by shiny growth stocks, but because they’re correctly focused on a very difficult and dangerous path ahead.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.