Stone Energy Corporation (NYSE: SGY)
Stone Energy Corporation has had an explosive month. In fact, today alone, the stock is up by more than 30% and looks like it could continue running upward. However, if you’re a smart investor, you might want to consider taking your profits now! This thing looks like it’s going to drop – and soon! Today, we’ll talk about why we’ve seen such strong gains, why the stock is nowhere near worth what it’s trading for at the moment, and what we can expect to see from SGY moving forward.
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Why SGY Is Climbing So High
At this point, Stone Energy is up in a big way from recent lows. The reason for the gains are relatively simple. You see, back in May, the company explained that financial times were getting so rough that bankruptcy was not out of the question. That’s a heavy statement to make, and investors react to these sort of things. So, we saw massive declines on the stock.
Nonetheless, the company explored other options, as any company should. As a result, we watched as SGY borrowed an additional $385 million. This gave the company some cash to work with and allowed it to stay above water. At this point, any news other than bankruptcy would have been good news. So, investors cheered the company’s decision.
More recently, we’ve seen additional actions that SGY has taken in order to improve its finances. Now, investors are arguing that the stock was trading at such incredible lows that it had to move up. Nonetheless, at this point, the gains have gone far past realistic. This is being caused by nothing more than investor excitement.
Just Look At Today’s Gains
If you haven’t seen the growth in Stone Energy, just look at the stock today. Currently (1:16), the stock is trading at $23.54 per share after a gain of $5.84 per share, or 32.99%, so far today. What’s more, there has been no fundamental news that suggests we should be seeing this kind of growth.
This Stock Is Destined For Declines
While we have seen incredible gains in SGY recently, I believe that the best move to make would be to take your profits now. The truth is, I’m not alone in this belief. In fact, analysts project that the stock will make it to around $8.16 per share. So, at the moment, it is trading at nearly 200% more than analysts expect to see.
So, what’s the rub here? Well, the simple fact is that things really haven’t gotten better for SGY. The company is heavily dependent on oil. As a result, it has seen massive declines in profits. In fact, the company is operating at a loss. In the year 2015, that loss came to a total of $1.1 billion.
Now, when we compare the company’s earnings to its debts, a big picture starts to emerge. With no profits and more than $1.5 billion in total debts, Stone Energy will have to continue borrowing money to even pay its debts on time. That’s not good news my friends.
At the end of the day, the recent rally is the result of presumptions that the stock had been battered and didn’t deserve the declines. However, that’s not the case. At the end of the day, things are looking overwhelmingly bad for SGY and conditions are getting worse. As a short-term play, you made your money. Now, it’s time to consider abandoning the ship before the thing starts to sink!
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What Do You Think?
Where do you think SGY is headed moving forward and why? Join the discussion at TalkTRENDZ from CNA Finance!
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