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Returns from OFS Stocks Trading at a Discount


Mar. 15 2018, Updated 7:32 a.m. ET

Five oilfield service companies trading at a discount

In this series, we already discussed the forward EV-to-EBITDA multiples of Flotek Industries (FTK), Oil States International (OIS), National Oilwell Varco (NOV), Superior Energy Services (SPN), and Fairmount Santrol Holdings (FMSA). They’re trading at a discount relative to their current EV-to-EBITDA. In this part, we’ll compare these OFS (oilfield equipment and services) companies’ performances in the market in the past year.

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What’s happening in the market and the industry?

Since March 10, 2017, the VanEck Vectors Oil Services ETF (OIH) has decreased ~18% as of March 9, 2018. The West Texas Intermediate crude oil price has recovered 28% during the same period. So, OIH has grossly underperformed crude oil price’s recovery because the OFS industry remains under pressure. For the latest on crude oil prices, read Why Broader Markets Are Important for Your Energy Portfolio. Since March 10, 2017, the SPDR S&P 500 ETF (SPY) has increased 17%.

Analyzing one-year prices

Flotek Industries underperformed the VanEck Vectors Oil Services ETF in the past year. Since March 10, 2017, Flotek Industries stock has decreased ~44%. Oil States International’s stock price has declined 17% since March 10, 2017. National Oilwell Varco’s stock price has remained unchanged in the past year. Superior Energy Services’ stock price has declined 27% since March 10, 2017. Fairmount Santrol Holdings’ stock price has declined 38% since March 10, 2017.

What impacted the returns?

The US rig count has risen 28% in the past year. OFS companies’ revenues and profitability can improve when upstream companies’ drilling and production pick up. However, OFS companies’ business models are also a factor. Although the offshore drilling business continues to remain challenging for most of OFS companies, the sharp rise in US hydraulic fracturing drilling has started to ease the pricing pressure on OFS companies’ offerings. If crude oil prices remain strong, higher upstream activity could have a positive impact OFS companies’ revenue and profitability in 2018.


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