Stock price when the opinion was issued
SOIL is a $328.6M company with a revenue base of ~$396M, and over the past 12 months it has generated net income of $392, however, it also was cash flow negative over the past 12 months. All of its cash from operations were eroded by increased CAPEX spending, which was funded by a combination of debt and share issuance. Its debt levels are quite high, but its valuation is also very low, but right now this is common in the oil and gas sector as commodity prices continue to weaken. SOIL has demonstrated some good qualities, and insiders have been buying. Its lack of dividend and relatively small size are probably the main drawbacks here.
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We think it is a high risk growth company with nearly $800M in net debt at a market cap of $551M. The stock is extremely cheap at 2x forward earnings and it has recently made an acquisition which should help it continue to grow. Recent quarterly results were also strong reflecting this acquisition. The upgrade highlighted SOIL as a diversified entity, with a strong management team that should be able to optimze free cash flow generation. We think it is an risky purchase, at a small size in a volatile industry, but the potential for growth is there and it is extremely cheap.
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Passed on last private placement.
Large abandonment liabilities.
Small company that doesn't attractive institutional investment.
Has taken on lots of debt.
No return of capital until 2024.
Weary on prospects of company.