Contango Oil & Gas (MCF, Financial) disappointed investors when the company reported its fiscal first quarter results. It is for the fourth consecutive quarter that its earnings have lagged behind the analysts’ consensus, which is quite disappointing. Considering its stock movement in the past few months, it seems to have an inverse correlation with oil price. Unlike the share price of its peers, which rose on account of a mild turnaround in the crude prices in the past few months, Contango sunk to its 52-week low. Starting with its numbers, let’s see what can we expect from this stock in the days ahead.
A weak performance and an uncertain environment
Its revenue for the quarter fell to $30.64 million from a year ago period. Also, the loss increased to 98 cents a share when compared to a loss of 53 cents last year. Analysts on the other hand were expecting a loss of 69 cents per share on revenue of $34.03 million. The numbers were mainly driven by weak commodity prices coupled with lower production. On the bright side, it managed to reduce its exploration and impairment charges year over year. But as oil prices are expected to improve, we could see better results ahead.
Considering the present pricing environment the company has slowed down on spending and will rely on its accomplishment in the fourth quarter and the recent one. It is important to curb spending in order to maintain its strong financial position. These initiatives will also prove beneficial if oil prices rally again. Analysts expect Brent crude to cross more than $90 per barrel by 2018. But at the same time, uncertainties loom on account of increase in oil production from OPEC.
According to a recent Bloomberg report, Iraq “plans to boost crude exports by about 26 percent to a record 3.75 million barrels a day.” This new addition will flood the oil market, which could further create volatility in the days ahead. it will be a matter of time to see how things go in this direction.
Conclusion
The company currently does not have any signs of either trailing or forward P/E because of its year over year losses. Although it’s P/S multiple of 1.03 is quite good compared to the industry average of 7.05 yet we cannot undermine the weakness that still persists. Therefore in the light of these facts, it seems prudent for investors to avoid this stock for the moment.
