Stone Energy Corporation (NYSE: SGY)
Stone Energy has been an incredibly interesting stock to follow as of late. Since late May, the stock has been gaining, with a big push upward happening over the past month. However, on July 12th, I published a release warning that this thing was getting too high. At the end of the day, it was destined for declines. On July 14th, SGY shed more than $3 per share! Now, we’re seeing relatively flat movement. However, I believe that this flat movement is the calm before the storm. At the end of the day, this stock is destined for declines. There are 4 big fundamental reasons that we can expect this thing to sink further. Today, we’ll talk about those reasons.
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Reason #1: SGY Is Already Drowning In Debt, And Will Likely Continue To Do So
When we talk about Stone Energy, we’re talking about a company that has, historically, taken a beating when it comes to earnings. Unfortunately, the company simply isn’t good at producing a profit. One thing they are good at, though, is raising money through debt.
The truth is that, last year, SGY produced a loss of $1.1 billion total. Furthermore, the company also has about $1.5 billion in debt. With such high operating expenses leading to losses, the company is in a tough position. It will have to continue borrowing money. Therefore, even if it did generate strong revenue, the majority of the revenue would have to go to paying off debts. This leads to a dangerous revolving door, and SGY is getting caught in the trap.
Reason #2: Conditions In The Oil Market Aren’t Likely To Improve
As the name Stone Energy would suggest, the company is in the energy sector. This is a sector that’s highly dependent on oil. When the price of oil is low, the company’s revenue and profits sink. For quite some time now, we’ve been in the midst of a crisis brought on by an oil supply glut.
Given global economic conditions, demand isn’t likely to climb any time soon. This, combined with the fact that rig counts are climbing and suppliers are working to increase production, is a recipe for another drastic decline in the value of oil. However, even if drastic declines don’t happen, the price of the commodity isn’t headed up any time soon. So, oil paints a relatively grim picture for SGY. With oil prices remaining low, the company is going to have a tremendously hard time generating any profits!
Reason #3: Take A Look At Analyst Opinions
While I’m not a fan of blindly following analysts, when opinions aren’t mixed and other factors fall in line, analyst opinions tend to be icing on the cake. Let’s face it, these guys and gals make their living by analyzing stocks and making predictions on where their values are headed. They know how to do their research! With that said, the overall analyst opinion of SGY is absolutely horrible.
According to NASDAQ, all analysts weighing in on the stock have it rated as a “Hold” or a “Sell.” Price targets on the stock suggests that we’re going to see losses for at least 3 years, with the consensus estimate of a $25.29 loss per share in the current year. That is a massive loss for a company with such a massive debt load. At the end of the day, analysts aren’t expecting anything good out of Stone Energy. Looking at the data myself, I happen to agree with them.
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What Do You Think?
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