Why Schlumberger’s Stock Price Is Weakening
Schlumberger versus peers and industry
Schlumberger (SLB), the largest oilfield equipment and services (or OFS) provider by market cap, has had a steady run in the market in the last year. On February 17, 2017, SLB was trading at $80.65, ~11% higher than its price in February 2016.
The VanEck Vectors Oil Services ETF (OIH), an ETF tracking an index of 25 OFS companies, has risen 35% in the past year. SLB makes up 19.2% of OIH. Flotek Industries (FTK), SLB’s smaller market cap peer, has risen 80% in the same period. Read about OFS companies’ expected earnings and valuations in What Oilfield Services Companies’ Forward Multiples Indicate.
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What does Schlumberger’s stock price movement tell us?
In the past year, Schlumberger’s stock price has trended upward. SLB’s revenue stayed steady in the three quarters leading up to 4Q16, after falling in the previous three quarters. Its net income, however, deteriorated in 4Q16, after it showed improvement in the quarter before that. Since the third week of January 2017, when SLB’s 4Q16 financial results were announced, it has fallen 7%.
Crude oil’s price recovery partially explains SLB’s steady run in the past year. West Texas Intermediate (or WTI) has recovered 84% in the past year. Burgeoning crude oil inventories could stall crude oil’s strong run going forward. Lower crude oil prices could lead to lower energy production, negatively affecting OFS companies such as Schlumberger, Oil States International (OIS), and Oceaneering International (OII). Read more on this in Market Realist’s Record US Crude Oil Inventories versus OPEC’s Supply Cuts.
Schlumberger’s moving averages
On February 17, 2017, Schlumberger’s stock price was at a ~4% discount to its 50-day moving average. It was trading in line with its 200-day moving average.
Moving averages exhibit smoother trends following stock price movements. A 50-day moving average is a short-term moving average, while a 200-day moving average shows a long-term trend. SLB’s stock price has been trading below its short-term moving average since the beginning of February 2017. SLB’s long-term moving average has fallen below its short-term moving average and its stock price, indicating that its stock price is facing some headwinds.
In this series, we’ll take a look at why Schlumberger’s returns have been steady. We’ll also discuss Schlumberger’s top line and bottom line growth, its balance sheet, its free cash flow, and its industry growth drivers. We’ll start with its management’s comments in the next article.