This is rather a very volatile stock. it derives its income from selling products and services that are primarily used in the hydraulic fracturing of natural gas and oil wells. Unless you live under the rock, you are aware of the recent oil price decline:
One of the expected consequences of the oil price drop is a (somewhat sharp) decline of oil rig count (per ZeroHedge, the rig count is now lowest since 2010). At the same time, the oil and gas production is surging – oil producers are trying to make up the lost revenue with additional oil production. In return, higher production leads to even lower oil price (supply exceeds demand).
As you can imagine, the shale industry is taking a big hit – as a result, the new shale well permits decreased significantly (for example, in November the permits for new wells dropped 15 percent across 12 major shale formations as of late November). Another important thing to pay attention to is the domestic shale oil breakeven price.
As you can see above, the vast majority of domestic shale producers are losing money on every single barrel they extract from the ground. As a result, some are suspending operations (while risking to default on their loans and driving up the cost of new credit), and the rest rev up the production to make up the lost revenue. Notably, some analysts suggested that energy boon and “shale oil revolution” in partiular have been driven not by technology, but by cheap credit. This makes perfect sense if you also look at the over leveraging of the energy companies (published by ZeroHedge in December 2014, Source: CapitalIQ; click to expand):
And while you smile all the way home from the gas station, a low oil price is not necessarily a good thing for the domestic economy – you might want to read this article). With current oil price just below $50, no one really knows how low it may go and for how long it will stay there. Some oil producers prepare for the $40 oil, some suggest that $30 or even $20 (here or here) is a more realistic number. Lance Roberts of STA Wealth Management reminded last month that “the last time oil prices fell 50% from their peak was in 1985-86. Oil prices then stayed at those levels until the turn of the century” (Source).
Now this brings us to CRR which (per their website) “helps clients design, build and optimize the frac to increase production and estimated ultimate recovery, lowering finding and development cost per barrel of oil equivalent.” Current short float of CRR stock is a whopping 33% mainly due to the doom-n-gloom oil/gas shale industry and consequently – company’s ability to deliver meaningful results in the following quarters. I came across a short thesis back from the days when CRR was trading at $150 (now in low $30s) – read it here. Basically, fierce competition (mainly from China) and falling prices are claimed to be CRR’s merciless murderers.
Now lets look at the positives.
1) Officers and directors own 14.6% of the stock (ValueLine)
2) 10-year annual rates of change of Revenues, Cash Flow, Earnings, Dividends and Boom Value are 15.5-16.0% (ValueLine).
3) No debt.
CRR currently scores a PE of 10.3 (forward PE is 15), PEG 0.62, PB 0.99, PS 1.2 and healthy margins:
The company is also facing lower-priced competition, but I personally doubt this is a new problem. Based on historical revenue growth, the management finds its ways to grow sales year after year (with the exception of 2008/2009). This year CRR is also releasing KRYPTOSHERE technology, “an ultra-conductive, ultra-high strength proppant technology engineered to maximize and sustain hydrocarbon flow at high closure stresses for the life of the well“.
Current dividend yield is 3.9% (high), payout is 30% (low), and the historical dividend increase is very impressive:
I don’t know much about the future. I cannot predict how oil price will change in the short- and long-term periods. But this particular company (IMO) currently presents a good opportunity to get some energy exposure. Perhaps a wait-n-see or dollar cost average approaches would be best given all the uncertainties. Next earnings are released before market on January 28th.
Other bloggers’ analyses can be found on Seeking Alpha (both bullish and bearish) and on DividendDeveloper.
Read the disclaimer and do your own analysis or consult with the professional for qualified advise.