FPA Capital Fund (Trades, Portfolio), an investment firm that seeks long-term growth through the careful selection of common stocks and select fixed-income securities, slashed its stake in Patterson-UTI Energy Inc. (PTEN, Financial) during the fourth quarter.
Patterson-UTI Energy is a provider of contract services to the oil and natural gas industry. It operates in three segments namely contract drilling services, pressure pumping services and oil and natural gas exploration and production.
According to GuruFocus, Patterson-UTI Energy has a 5 of 10 financial strength rating with a cash-debt ratio of 0.06, an equity-asset ratio of 0.60 and a Piotroski F-Score of 3, which is low indicating the company’s financial situation is poor.
Patterson-UTI Energy has a 6 of 10 profitability and growth rating with an operating margin of -41.67%, a net margin of -29.69%, a return on equity (ROE) of -11.97%, three-year revenue growth of -10.20% and a return on capital (ROC Joel Greenblatt (Trades, Portfolio)) of-10.91%.
Patterson-UTI Energy has a market cap of $4.13 billion, an enterprise value of $4.71 billion, a price-book (P/B) ratio of 1.81 and a quick ratio of 1.10 and a dividend yield of 0.58.
Since the third quarter of 2015 when FPA Capital purchased its original stake in Patterson-UTI Energy the company’s market price has gained an estimated 56%.
It is possible that FPA Capital decided to slash its stake for the following reasons.
- The company was approaching its two-year high in price during the fourth quarter.
- The company’s revenue per share growth rate was -10.20% per year over the previous three years.
- The company’s gross margin has been in long-term decline. The average rate of decline is -3.1% over the previous five years.
- The oil industry is highly volatile and FPA Capital may have decided that it wanted to reduce its variance by reducing its position.
- Patterson-UTI Energy is trading above its intrinsic value according to the Peter Lynch chart below.
Disclosure: The author does not own any shares of this company.
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