If you follow Gasfrac Energy Services, Inc. (symbol GFS in Canada and GSFVF on the pink sheets), you have probably seen some of the frenzied speculation about the recent price rise of the stock. Since hitting a closing low of $2.49 on June 27th, the stock has risen over 50% to its current price of $3.79. That is 52% in less than three weeks. Is something big like some additional long term contracts about to happen? Did some sort of good news leak out of the company? Will we hear that some large corporation is acquiring the stock? The theorists are having a field day on the internet sites where GasFrac is discussed. Nevertheless, it is worthwhile to step back and to take a broader look at the company to see if we can discern what is going on.
First of all, the price rise is great. Most likely, however, it is just a bounce back from the extremely low price that GasFrac hit in its fall that took place after the first quarter results were released. Let's compare GasFrac to other oil service stocks over the recent past. There really is no other company that is exactly like GasFrac; no one else does fracking using liquid propane. We can compare Gasfrac nevertheless to companies like Trican Well Service (a major Canadian fracking contractor), Calfrac Well Services, Weatherford International and even Schlumberger Ltd. Over the last month, GasFrac is actually down about 4%. Weatherford and Schulmberger are both down but by a bit less during the same period. Trican and Calfrac are down by just a bit more than GasFrac. When viewed in this context, the GasFrac move does not look like anything other than a return from the depths back to a position where it is trading in line with its industry segment.
Second, the volume of trading in GasFrac has been light. Since the bottom of the price curve was hit on June 27th, there has not been even one trading session where volume for the day exceeded the 90 day average volumne of 372,241 shares. If leaks of good news or furtive buying ahead of a takeover were happening, volume would spike. Obviously, there would not be high volume every trading session, but at least occasionally it would be high. Instead, the average volume for the last ten days is only 54% of the average volume of the last 90 days.
What all this tells us is that the move in GasFrac stock is just the recovery from its being oversold. The key moving forward is still going to be the second quarter report in the beginning of August and particularly the conference call at that time. If the second quarter revenues meet those of the first quarter and the second half of the year remains on track to generate 65-70% of the total revenues for the year (all of which was predicted by management during the first quarter conference call), then the stock should recover further. If management lowers that outlook, however, the decline will likely be back. Simply put, the pressure is on; it is time for the company to perform.
DISCLOSURE: I remain long GasFrac stock.
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