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Could These OFS Stocks Be a Concern for You?

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CARBO Ceramics

CARBO Ceramics’ (CRR) short interest-to-equity float ratio is 28.6%—the highest among the OFS (oilfield equipment and services) stocks that are part of the VanEck Vectors Oil Services ETF (OIH).

In the past three months, the stock rose 159.5%. CARBO Ceramics’ short interest-to-equity float ratio fell 0.3% during this period. CARBO Ceramics is one of the high implied volatility OFS stocks that we discussed in Part 1 of this series.

In the last four quarters, CARBO Ceramics’ revenue fell 48.8%, while its adjusted operating loss was $27.8 million in 4Q16—compared to an adjusted operating loss of $32.3 million in 4Q15. Its operating profit margin is -97.9%—compared to the industry median of -5.1%.

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Tidewater

Tidewater’s (TDW) short interest-to-equity float ratio is 28.4%. In the past three months, the stock rose 14.5%, while its short interest-to-equity float ratio fell 2%. Its net debt-to-EBITDA ratio was 13.1x. Tidewater’s operating profit margin is -10.5%—compared to the industry median of -5.1%. It announced its 3Q17 earnings results on February 7, 2017.

Diamond Offshore

Diamond Offshore Drilling’s (DO) short interest-to-equity float ratio is currently 27.9%. In the past three months, Diamond Offshore Drilling stock rose 5.8%, while its short interest-to-equity float ratio fell 13.3%. The company’s net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio is 2.7x.

In the last four quarters, Diamond Offshore’s revenue fell 29.4%, while its adjusted operating income was $110.2 million in 4Q16—compared to an adjusted operating income of $158 million in 4Q15. However, its operating profit margin is 21.1%—compared to the industry median of -5.1%.

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Seadrill

Seadrill’s (SDRL) short interest-to-equity float ratio is 25.8%. Its net debt-to-EBITDA ratio is 4.1x. The stock fell 17.3% in the last three months, while its short interest-to-equity float ratio rose 9.1%. In the past four quarters, Seadrill’s revenue fell 22.5% and its operating income fell 30.2%. Seadrill is also among the high implied volatility OFS stocks discussed in Part 1 of this series.

Noble

Noble’s (NE) short interest-to-equity float ratio is 21.7%. The company’s net debt-to-EBITDA ratio is 2.3x. In the past three months, Noble stock rose 42.2%, while its short interest-to-equity float ratio fell 6.9%. Noble is also among the high implied volatility OFS stocks discussed in Part 1 of this series.

In the last four quarters, Noble’s revenue fell 57%, while its operating loss was $2.2 million in 3Q16—compared to an operating profit of $410 million in 3Q15. Its operating profit margin is 36.7%—compared to the industry median of -5.1%. It could announce its 4Q16 earnings results on February 28, 2017.

Link between stock prices, short interest, and implied volatility

There’s an inverse relationship between returns and short interest in the stocks we analyzed above. Stocks that gained experienced a fall in their short interest and vice versa.

The high short interest in stocks such as CARBO Ceramics, Noble, and Seadrill could explain why they also have high implied volatilities. Traders pile on short positions when they expect a large fall in stocks. Apart from large moves in stocks, expectations of large movements in stocks, particularly on the downside, can increase implied volatilities.

All of these high short interest OFS stocks saw their revenues fall over the last four quarters, which could be one of the reasons for the high short interest in the stocks.

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