The price of oil clearly has an effect on the stock prices, but not necessarily on the underlying businesses. As long as the price of oil is high enough for the oil majors and drillers to be profitable, they'll buy pumps. Right now, that price may be around $14. Of course, a drop in prices below $14 won't necessarily hurt LUFK and equipment manufacturers, because the oil companies are long-term planners. According to my recent discussion with the company, LUFK hasn't lost any orders due to the low price of crude. That might change, but I don't think so. If OPEC mandates an increased output from existing oil wells, that's not good for LUFK, because LUFK's pumps are used for wells that are not producing oil right now. For example, if a new oil well is drilled, it might need a LUFK pumping unit to draw out the oil. But if the world supply is rising (and the price falling), it may not make sense to drain the well of oil. Therefore, the well remains plugged or covered until it is to be pumped.
I don't think that the oil problem is really a problem. If one company is afraid to explore, drill, pump and produce oil, another company will do it. I think the price depression is a temporary phenomenon. Regardless, the stock isn't going much lower (10% downside, maximum), unless LUFK's business suffers significantly.
Todd |
