Okay, I’ve read the report from BAS and can comfortably say that those who are pressing BAS shares lower are mentally unhinged.
Today – October 24, 2014 – a prospective investor could purchase shares of BAS for about $13.60. BAS just reported earnings of $0.24 a share, up from $0.06 last quarter. At a current book value of just under $7; and even playing coy and considering BAS earnings of $0.15 a quarter from here forward; BAS is priced with a risk threshold of just 11 years.
At the most recent earnings of $0.24, that threshold drops to a theoretical breakeven point of just under 7 years.
BAS is priced perfectly reasonably, and that gets you exposure to a company that grew revenues an additional 10% in the last three months. Year over year, BAS is growing at a more than 20% clip.
BAS hit these numbers without even factoring in additional operation capacity that is being brought online later this year. Consider for example completion and remedial services, where as of September 30, 2014, Basic had roughly 413,000 HHP up from approximately 351,000 HHP at the end of the previous quarter and 292,000 HHP as of September 30, 2013 – that’s a 42% increase in capacity.
But oil prices are going to render that excess capacity worthless, right? Actually I defer to the CEO on this subject:
“We have not seen a reduction of activity by our customers due to the recent decline in oil prices, and none have indicated reductions in their 2015 growth plans. Early indications of these capital spending programs look to be slightly higher than 2014 levels. We will monitor utilization rates closely and should we see any meaningful pullback, we will react quickly as we have historically.”
So to recap; BAS is a company growing at a rate that makes it the envy of the party, which even excluding any additional growth is moderately priced, down 9% today because people are concerned, mind you, that maybe the industry might slow down (of which there is no indication whatsoever that BAS would be hurt disproportionately or even that that is happening).
Let me put this all into perspective for you. You could go out today and buy shares of BAS for the same price that you could get them last year when the company was losing $0.17 per share per quarter. The market is giving BAS no premium whatsoever for going from an unprofitable company, to a profitable one.
Jesus! – (punches a brick wall in his office) I hate it when the market does dumb shit like this!
I have just mentally budgeted an additional 10% of my asset allocation solely for the purchase of BAS shares until such time as I shall be either satisfied, or badly wounded.
Today, my account stands about 95% long. I am willing to take it to 105% on margin exclusively for the acquisition of BAS shares, not counting on any other purchases I might elect to make or future sales.
First buy order comes at $12.
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Cain – no oil capex budgeting for ’15 will be impacted unless oil completely craters. ’16 budgets are likely safe to at $80. The real issue is that ’17 budgets will get cut back if oil stays around here. That capex spend reduction will likely not be major at $80 oil, but below that, things can get dicey. Intermediate term Bakken breakevens are ~$80/barrel; Eagle Ford ~$60/barrel. Again, though, this assumes oil stays down to lower for 2+ years…
Thank you for the input.
Assuming oil will stay anywhere for 2 years is crazy. 20% fluctuations have been normal.
Couldn’t agree more… that’s why I’m also pretty long oil-related right now. Think we’ll end up being right, just may not be the smoothest of wins.
Cain, any additional thoughts re NADL and SDRL also for that matter. Made some really good $’s over the years in the parent, have been nibbling at NADL.
NADL will make a big move in the fourth quarter. I don’t know if that move will be up or down. But it will make a move.
Obviously I’m better it’s up.
Many thanks.
There’s a ton of support in the 12-13 range, that’s where you’d want to do most of your buying
While I agree and intend to, I’m not sure BAS applies. BAS shareholders are notorious cowards. Back in the day, the stock would slice between $9-14 on whispers of whispers. BAS owners cave at the first sign of adversity.
I would caution you to take the CEO comments with a grain of salt.
Their customers don’t necessarily have to follow their Capital Expenditure programs. There could be a large variance between budgeted vs. actual expenses for 2015.
However, I expect WTI to be back to $90+ by Memorial Day. If not, then I would be concerned.
Took a 10% position here in BAS. Looks overdone even with oil at $80. I’m curious as to your take on why Goldman downgraded it here today and Zacks has it at a Strong Buy and a #1 rating?
Because Zacks is a computer program and Goldman are criminals
Hello Cain, I’m joining you on the BAS. My reason for buying today is purely technical. Price seems to be bouncing off the 2013 low which I’m counting on as support. My hard stop is a bit below $11.
The fundamental background on BAS you explained in your post is the reason I picked BAS among all others for the bottom picking trade.
Thanks and Cheers!