Bill -- Where were you when I needed you? About a month ago, I posted a question on the oil drilling & services thread, to the effect that I wanted someone to overcome my reservations about the drillers. Some people didn't know what I was talking about, since they had absolutely no reservations themselves -- the drillers were making money, day rates were skyrocketing, and that's all that counted. That they were pouring all this money, and then some,back into updating their antiquated rigs or whatever seemed less important.
I did realize that the oil drillers were coming out of a long dry spell, and that one should use different standards in judging their past performance than one would use in judging Coca Cola, for example. But looking at their PRESENT free cash flow situation, what worried me was not so much their past, as their future. Not knowing anything about the industry, really, I wondered whether they were not overextending themselves, and whether if things down the road turned out to be not as rosy as expected, they would be vulnerable.And I thought I detected signs of a "feast or famine" mentality: "Eat, drink, and be merry, for tomorrow we die" (again).
In the end, I did buy a driller (ESV), as well as a boat company often mistakenly classed with the drillers: Tidewater (TDW), which just happens to have excellent free cash flow.
All told, I agree with you that it is important to view companies in a wider context, most particularly in the context of their industry. When you play with numbers, there is always the danger of getting out of touch with the realities. |
