John, agreed on KEG's debt/equity ratio. I'm intrigued by this one, but there are a few things which give me pause. The main thing is the debt, but there's also a little item in their latest 10-Q which states that they're increasing the depreciation period for their equipment by several years. This could be a legitimate response to the changing nature of their technology, but it could also be an attempt to dress up their earnings a little nicer to help them sell more debt (which one news report says they're considering).
Re the bubble, I browsed through the SI message board and one of the posts from back then mentions that Cabot was touting the stock. That alone could be enough to explain it. BTW, one thing I noticed which surprised me is that KEG is 40% held by institutions. That strikes me as unusual for a stock with a capitalization this small.
I also agree with you on the values to be found in oil services. I'm a long term holder of Transocean (RIG), and recently added more. Another company which looks interesting right now is R&B Falcon (FLC), the result of a merger between Falcon and Reading & Bates. I favor the deep water drillers in this sector because I believe they have better visibility of earnings, and because I believe the barriers to entry are higher there. RIG has certainly worked out pretty well for me so far, even after the recent decimation of the stock price.
In any event, a run-up in KEG over the next month wouldn't surprise me after what you've posted on the January effect. I don't think bankruptcy is imminent, so the company should be able to continue on for a while longer. For that matter, even the threat of bankruptcy isn't enough to scare away some of the small stock investors. Hopes for a January bounce certainly aren't enough to persuade me to buy, but it will be interesting to watch.
FWIW,
Mark |
