Don
First of all, let me thank you for bringing EGEO to my attention. I have added it to the list of the Oil stocks I follow and I like it for a big pop when the sector recovers, (if it is still around). Now, unfortunately I have to disagree with your two main points.
1. The oil problem is not simply over production. It started with the aisian problem and has continued right on along with it. When all those economies tanked, they immediately quit using significant amounts of oil. Asia was the fastest growing area of the world for oil consumption, and the world's oil producers were enjoying the supplying of their pumped up demand, which is now deflated. Russia and Brazil have also cut back consumption. How many more countries are going to implode and simularily quit using as much oil. If people are broke, they don't buy cars. I can remember hearing an analyst saying 1 1/2 years ago, "pretty soon everybody in China is going to want a car, that's gonna use a lot of oil", as he was predicting $40/barrel prices in the Y2K.
2. I have looked at EGEO. There are solid reasons why the stock has tanked way down into the 2's. In the last 2 months, with the stock price already, way down, they were cut by Prudential and Southwest, and Moodys is worried enough about their long term solvency, that they are reassessing their debt rating. Sure a lot of their current numbers look real good, but what about 1 year from now? EGEO's estimate for '98 is .52, the consensus estimate for '99 is .02, one analyst even had it as low as -.50 for '99. The fact of the matter is that with EGEO as with many other oil servicers and drillers, they will eventually loose money, when this downturn in oil continues. That's why this stock is so beat up. Book value, past earnings growth, and revenue growth mean nothing if a company is going to lose money and eventually go out of business. EGEO is not under valued, it is just trading at future earnings like all stocks do, and for EGEO that happens to be almost nothing, and hence the price.
Bill Z |
