The biggest Bargain in the Market today -- GasFrac

It is not often that I would write a headline like the one for this post, but GasFrac Energy Services Inc (symbol GFS:CA or GSFVF on the Pink Sheets) is a screaming buy in my opinion. The company has a proprietary method for completing or "fracking" gas and oil wells in shale formations through the use of liquified propane gas or LPG. That method improves the productivity of the well after completion and also does away with the use of water required by the common hydrofracking method. That means that the pollution and water use concerns of hydrofracking are pushed aside completely.

GasFrac is a relatively small Canadian company that has been growing quickly over the last few years. For the next year at least, GasFrac has sufficient demand for its services that the limiting factor in its growth is the amount of specialized equipment that it has available for use. The company is in the midst of a series of large increases in equipment and other capital assets. By the end of 2011, GasFrac will have something in the area of five times the capacity that it had at the end of 2010. It should be able to run revenues at a rate commensurate with that equipment increase.

Over the last week, GasFrac has fallen with the rest of the energy stocks in a market wide decline. The metrics for GasFrac, however, are very different from those like the price of oil that govern the value of oil E&P companies. That is why there is a major bargain available right now in GasFrac stock. The stock closed in Canada at $10.95 on Friday down about 30% off of its 52 week high. At that level, it is an incredible buy.

I have previously explained my target of $40 for the stock in an article that can be reached by clicking on the title to this post.

You should be aware that GasFrac will be announcing its earnings for the first quarter today (Monday) after the market closes. Those earnings will be affected by a two week shutdown of the company last January after a work site explosion raised safety questions about GasFrac operations. That one-time event, however, ended with no problems found with the GasFrac process, so the impact on earnings will be there without any effect on future profits. There will also be an update from the company on its competative position and prospects.

My prediction is that after earnings are out and the conference call completed, the stock will soar.

Disclosure: I have been long GasFrac stock for a long time and I add to that position from time to time.