Flotek’s returns versus the industry
Flotek Industries’ (FTK) stock price has fallen 32% in the past year as of June 30, 2017, compared with the 5% fall seen by the Energy Select Sector SPDR ETF (XLE), which represents the broader energy industry.
FTK has also underperformed the VanEck Vectors Oil Services ETF (OIH), an ETF tracking an index of 25 OFS (oilfield equipment and services) companies, which has lost -17% in the past year. The SPDR S&P 500 ETF (SPY) has returned 15% over the same period, while the Dow Jones Industrial Average (DJIA-INDEX) has risen 19%.
Crude oil price and US rigs
Between December 30, 2016, to June 30, 2017, the WTI (West Texas Intermediate) crude oil price fell 14%. In 2016, the crude oil price staged a strong recovery, rising 45% during the year. You can read the latest on crude oil prices in US Crude Oil Production and Rigs Drive Prices.
Although crude oil prices have turned bearish recently, the US rig count has risen 118% in the past year. You can read about how OFS companies like Schlumberger (SLB) and National Oilwell Varco (NOV) have been faring in Market Realist’s Weighing SLB, NBR, NOV, and WFT after 1Q17.
Flotek’s strategies: asset sales to improve metrics
In May 2017, Flotek completed the sale of its Drilling Technologies and Production Technologies segments. The objective of the sale was to improve FTK’s returns on capital and returns on tangible assets.
In the company’s 1Q17 earnings conference call, FTK Chairman and CEO (chief executive officer) John Chisholm explained: “Roughly a year ago, just after the oil price trough in Q1, we announced that we will explore strategic initiatives in both our Drilling Technologies and Production Technologies segments. This review has led us to a process to divest these businesses to streamline our capital allocation and corporate efforts.”
Chisholm added: “We listened to our shareholders and assessed the marketplace, and while timing may be later than some may have wished for, we believe that we’ve maximized the value and ability to execute these transactions for the benefit of the shareholders of our growing company.”
In this series, we’ll analyze relative valuation multiples, what market indicators tell us about FTK stock, and the Wall Street analysts’ recommendations. Continue to the next part for a closer look at Flotek’s historical valuation multiples.