Opinions
Steve Martin
Polaris Geothermal Inc.
GEO-T
DON'T BUY
Apr 18, 2008
Stock price when the opinion was issued
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GEO is a small-cap name ($125M market cap), but its long-term trend from 2020 has been positive, and recent momentum has been picking up. Its earnings track record has been mixed, and sales growth is fairly muted. It is profitable, but with very thin margins, and its free cash flow has turned negative. It trades at a good valuation and has a decent balance sheet, and its earnings have seemed to hit a bottom, with forward earnings growth moving higher. An improved backdrop of the price of gold and strong demand for its services have helped boost the stock. Recent results were good, and if the price of gold continues to move higher, we could see GEO continue to increase.
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Geodrill offers drilling and exploration services with 19% growth expected next year but the growth rate does tend to be volatile year to year. Shares are cheap at 8X forward earnings but the industry can be cyclical so a lower valuation is justified. Sustainable capital holds roughly 12% of shares as of their latest filing valued at 14.9 mln (5.9 mln shares). There could be a number of reasons why they are selling so we won't speculate but we would not view the selling on its own as a signal that there is an issue.
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