ExxonMobil (NYSE:XOM) stock has a problem: What happens if you report fantastic earnings and yet no one cares?

ExxonMobil isn’t alone. The whole energy industry has found itself in precisely that dilemma this summer.

Oil major after oil major has put up their best earnings results since the pandemic started, yet found their shares sliding after the results came out.

On July 30, ExxonMobil released its second-quarter earnings. The company’s results were its best in a long time.

On cash flow in particular, ExxonMobil posted its strongest numbers since 2018, and yet XOM stock barely moved on the news and subsequently has resumed its downtrend. This is the wrong reaction.

For the second quarter, ExxonMobil generated $1.10 per share in earnings. Annualized, that’d work out to around $4.40 per share.

Analysts see the company earning around $4.50 for FY ’21, with earnings forecast to jump to $4.75 the year after. This would put XOM stock at a 13 P/E ratio for this year and a 12 forward P/E.

It’s not just earnings either. In fact, with energy companies, it often makes sense to look at cash flows instead. That’s because earnings can be distorted by large one-time gains or asset write-downs among other factors.

On cash flows, ExxonMobil reported its single most successful quarter since 2018. Cash flow from operations hit nearly $10 billion for the quarter.

This easily was enough to cover the company’s operations, new investments, debt interest, and dividends payments. For years, analysts have warned that ExxonMobil hasn’t generated enough cash flow to meet its needs. Now, ExxonMobil is back to self-sufficiency with extra room to spare.

Buyback Pause

So if the numbers are great, why isn’t XOM stock climbing once again? There are a couple of key factors that have caused ExxonMobil to underperform its peers.

For one thing, ExxonMobil chose not to restore its share buyback policy. You may recall that ExxonMobil stopped its repurchase program back in 2016 when the price of oil and gas had plummeted.

Since then, ExxonMobil has had to take on additional debt to fund its dividend policy and investments in new energy projects.

Logically, it didn’t make any sense to buy back stock when it couldn’t even pay for its existing dividend out of cash flow from operations. Now, however, ExxonMobil’s cash flow more than covers both its investments and its dividend payout. So why not buy back stock? Rivals such as Chevron (NYSE:CVX) and Total (NYSE:TOT) restarted their buyback programs, after all.

The simple answer is that the balance sheet comes first. ExxonMobil prides itself on being a stable blue-chip company that maintains its dividend through thick and thin.

It famously resisted heavy pressure to slash its dividend in 2020 when oil prices were through the floorboards. However, ExxonMobil had to shoulder a good deal of debt to keep its investment strategy and dividend going.

Now, ExxonMobil rightly wishes to pay off some of that extra debt and get its balance sheet ready for whatever may come next.

It’s particularly disappointing seeing folks who demanded the company slash the dividend now criticize the firm for not buying back stock. Before, folks were rashly urging a dividend cut. Now that times are good again, they want ExxonMobil to spread itself too thin financially.

If any management team has earned a little patience from its shareholder base, it should be ExxonMobil’s.

XOM Stock Verdict

So the lack of a share buyback is limiting XOM stock’s upside for the time being. That’s fine, as long-term shareholders can appreciate a strong balance sheet and healthy dividend payout.

There’s also the activist pressure against the company. I’ve argued that this is overdone. Simply put, an oil and gas company can’t transition to renewables all that quickly even if it is fully committed to the task.

In the case of ExxonMobil, management has shown that it isn’t going to rush out of its existing fossil fuel business just to appease environmental, social, and governance (ESG) based shareholders.

All that said, ExxonMobil is well-positioned to profit from the current surge in oil and gas prices. Don’t overlook the company’s robust refining and chemicals business either.

As the economy surges, other oil outputs such as asphalt, jet fuel, and fertilizers have become more valuable, adding to Exxon’s bottom line. Conditions are in place for ExxonMobil to enjoy a sustained recovery in its operating business. That will end up superseding any short-term concerns around the company not reinstituting a share buyback yet.

On the date of publication, Ian Bezek held a long position in XOM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.