$24.79
-0.92 (-3.58%)
Dawson Geophysical Company (DWSN)
CAPS Rating:
The Company acquires and processes 2-D, 3-D seismic and multi-component seismic data for its clients, ranging from major oil and gas companies to independent oil and gas operations as well as providers of multi-client data libraries.
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The market price seems ridiculously low to me. Start with the $16.70 per share they are trading around right now. Subtract out their current assets and liabilities (their checkbook balance, basically), and we get $10.06. Take their property (seismic equipment, etc), cut its book value in half (likely crazy, but let's try to think like the market here), subtract that out, and we get $0.61 per share. Subtracting the full book value of the property, and that's ($8.84) -- that's right, negative.
Selling this stock is like saying the guys who just pulled in $1.21 per share in profit -- after depreciation and taxes -- in the last quarter (in these terrible, Great-Depression-like times, mind you) are somehow subtracting $8.84 per share from the value of the property they use. You'd have to be crazy, ignorant, or somehow forced to sell at this low price.
Assuming they maintain their current operation, I see them potentially making $4.40 in earnings next year alone. The analysts project $4.05 for 2009. $16.70 for a company with no debt, $23.86 on the books, making over $4 a year? I'll buy that.
Update: I'm no fan of Chesapeake (though I do like SandRidge). But they do provide Dawson Geophysical with a large chunk of revenue. I can't say I like the news of Chesapeake and SandRidge cutting back on exploration spending next year. It isn't exactly surprising, given how low natural gas is selling for now, but we in the U.S. aren't going to simply stop using natural gas. One day, supply will drop enough where the price will go up, and it will be profitable to spend money on exploration again. If not Chesapeake, then someone else. I don't think we're looking at a long term collapse. In fact, I'd say the market for Dawson's services is more in demand now, as oil and gas companies seek to be more environmentally conscious (seismic data = fewer dry holes), more profitable (overall lower cost) and more involved in complex drilling situations (shale, etc). Dawson has been around for 56 years, they've seen downturns before, they'll get through this one.So the question is now short term. The company has no debt, so that's not a worry. Shares now have a P/S ratio of 0.38. The bad news is already factored in, and then some. Even if all Dawson customers slashed their geophysical spend in 2009 by 50%, the P/S would still be less than 1. I'm just not that worried. Keeping the thumbs up on this one.
Dawson has nearly doubled since I wrote that the price seemed ridiculously low at the beginning of the year. Of course, it got worse before it got better (I find it often does), but it has tripled in the past couple of months since dipping down around $10.
At this point, I still like Dawson, I still think it's going up from here, but I'm not all that keen on it being one of my "Top Picks" so I'm removing the green $ today.