Arnold Schneider Adds to Approach Resources

Company is one of the guru's many energy holdings

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Sep 16, 2016
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Arnold Schneider (Trades, Portfolio) of Schneider Capital Management added to his position in Approach Resources Inc. (AREX, Financial) on Aug. 31.

Schneider is president, chief investment officer and principal of Schneider Capital, which he founded in 1996. Schneider believes disciplined value investing produces the best investing success over time. He depends on research geared toward identifying stocks and securities that are undervalued but have potential for positive change.

The guru purchased 945,362 shares in Approach for an average price of $3.32 per share. The transaction had an impact of 0.6% on the portfolio.

Approach Resources, an independent energy company, is occupied in the exploration, development, production and acquisition of unconventional oil and gas reserves. The company operates in the Midland Basin, part of the larger Permian Basin in West Texas. The company is headquartered in Fort Worth, Texas.

The company has a market cap of $124.4 million with an enterprise value of $623.2 million. It has a price-book (P/B) ratio of 0.2 and a price-sales (P/S) ratio of 1.2. The company’s price-free cash flow (PFCF) ratio is 3.99, and its price-operating cash flow (POCF) ratio is 1.9.

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GuruFocus ranked the company’s financial strength 3 of 10. Its Piotroski F-Score of 2 indicates the company has a poor financial condition. Similarly, the company’s Altman Z-Score of -0.6 places it in the distress zone, indicating the possibility of bankruptcy in the near future. Its Beneish M-Score of -4.6 implies the company does not manipulate its financial records.

GuruFocus ranked Approach’s profitability and growth 6 of 10. Its operating margin is -282.5% and its net margin is -185.2%. The company’s return on equity (ROE) is -29.2%, ranking below 55% of other companies in the oil and gas industry. Its return on assets (ROA) is -15.1%, ranking above 51% of other companies in the industry. The company’s three-year revenue growth is -4.1%, ranking higher than 61% of other companies.

Approach Resources’ poor financial outlook can be attributed to the ongoing decline in oil and natural gas prices.

Schneider has been involved with Approach Resources since the second quarter of 2015. He and Charles Brandes (Trades, Portfolio) are the only gurus invested in the company.

Energy companies appear to be popular with Schneider as 39.4% of his portfolio is composed of them. Half of his top 10 holdings for the second quarter are involved in or related to the oil and gas industry. They are SM Energy Co. (SM, Financial), Consol Energy Inc. (CNX, Financial), Weatherford International PLC (WFT, Financial), MRC Global Inc. (MRC, Financial) and WPX Energy Inc. (WPX, Financial).

The DCF Calculator gives Approach Resources a fair value of $-48.48; the stock was trading at $2.93 Friday.

Disclosure: I do not own stock in any companies mentioned in the article.

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