Companies working in the energy patch have not surprisingly taken it on the chin over the last few years, as oil prices have splintered into pieces from over $107 per barrel in mid-2014 to a low near $26 in February 2016. The price of crude has nearly doubled off that bottom since and are holding steady in a channel basically between $40 and $55 for most of 2017. Albeit cheap oil still, the stability has resulted in some investment in the sector again and, subsequently, modest recovery in stock prices for most in the space, although still paling in comparison to pre-2014 values for most.
Still, if a stock that was trading at a high of $3.57 in early 2014 has “recovered” to 31 cents, it certainly seems there is upside potential still in the cards.
Technical traders often look to support and resistance levels, price points that attract and deter investment, respectively, with little regards for fundamentals. Conversely, fundamental traders look to the books and assets of a company to determine value against the backdrop of the industry, generally paying little attention to technical merits. When the two meet, though, it can catch the attention of both.
Like many others in Western Canada, and the sector as a whole, construction services and equipment rental company Enterprise Oilfield Group, Inc. (TSX: E) has adapted to low crude prices, divesting assets and ceasing some operations to focus on the most profitable aspects of the company. As a result, the balance sheet has improved and Q2 ended with the St. Alberta-based company having a net asset value (assets minus debt) around $49.0 million.
This from a company with a market capitalization of under $17.0 million.
It was early in August when Enterprise reported the results of operations from Q2 and 1H, showing the net asset value and the fact that revenues rose to $15.95 million in the first half of 2017 compared to $13.85 million in the year prior period.
Indeed, shares of E were trading at $3.57 when oil prices collapsed and after hitting 18 cents concurrent with oil bottoming has risen back to as high as 42 cents in June before settling Wednesday at 31 cents. Technical traders will take not that the area of 29.5 cents has been a strong support level since breaking over it in January, only dipping below it on four occasions to promptly rebound back over that level.
In that vein, 30 cents (that’s why support is often referred to as an “area”), which the stock price bounced off today has also held firmly as support. The near-term upshot is that there is only minimal resistance (at $0.32) until some stiffer resistance 13% up the road from current levels at 35 cents. Momentum could be building by that point, which could mean a test of the 2107 high at 37 cents, which may be a gain of 19.4% from Wednesday’s close, but still only translates to a market cap of roughly $20.6 million, which is a figure debatable for analysts about fair value.
