As earnings season got underway, stocks in the energy sector surged 6 percent in April, more than double the next closest sector's gain.
Yet results during this profit season will show that first-quarter earnings crashed 64 percent for companies in the sector.
WTI oil has jumped, to nearly $58 a barrel on Tuesday, after hitting a six-year low in late March at $43. It's a tremendous move by the commodity, but many investors and analysts who follow energy stocks worry the shares are getting way ahead of themselves.
Oil-related stocks "imply (a) quick rebound in profits," Deutsche Bank wrote in a report to clients Friday. The "mini oil price rally provides another exit opportunity."
By the math, crude would need to rise to $75 immediately and stay there for a year in order to justify the levels where energy stocks are trading right now.
The bank gets that figure by taking the $1.5 trillion market value of all energy companies in the S&P 500 right now and dividing by a 15 price-earnings ratio, a modest multiple where the sector on average has traded.
That equals $100 billion in implied earnings that the energy sector would need to post in order to justify current stock prices. In the past, for the sector to achieve that level of profits, oil needed to average $75 a barrel for a year.
But energy companies are nowhere near those earnings levels. Deutsche Bank estimates that the energy companies in the S&P 500 as a group will earn just $50 billion this year and $75 billion in 2016.
"They are all reflecting $75 oil. Half of the domestic producers will have losses this year," said Fadel Gheit, senior energy analyst at Oppenheimer. Gheit said when oil was at its highs last June, the stocks reflected $95 oil.
First quarter earnings for energy companies in the S&P 500, based on those that have already reported and estimates for the rest, dropped by 64.4 percent, according to FactSet. So far, not one energy company reported revenues that topped consensus analyst expectations.
Yet the sector still trades for a forward price-earnings ratio of 30.5, the highest of any market sector.
The money play:
Clients keep bugging Brian Belski, chief investment strategist at BMO Capital Markets, about energy stocks because they obviously feel like they are missing out on the best return opportunity of the year.
But Belski is holding his ground in his "underweight" designation for energy stocks. He wrote in a report to clients Friday:
"Energy is one of the few cyclical areas of the market where expected returns have not only diminished, but have also plummeted from the start of the year based on bottom up mean consensus target prices. And while expected returns are still reasonable, we expect them to drop even more in the coming months given the valuation and growth backdrop. Even with lofty 2016-2017 expectations for Energy growth, it does not come close to making up for 2015 weakness. In fact, when you "blend" P/Es and expected growth rates over the next three years you find that the PEG for Energy is extremely expensive."
—With reporting by Patti Domm, CNBC executive news editor.