Activist investor David Nierenberg (Trades, Portfolio), manager of the D3 Family of Funds, disclosed this week he expanded his position in Geospace Technologies Corp. (GEOS, Financial) by 72.57% to 681,206 shares on April 19.
According to GuruFocus real-time picks, Nierenberg, who typically invests in undervalued, micro-cap growth stocks, purchased 286,458 shares of the Houston-based oil and gas equipment and services company for an average price of $10.74 per share.
GuruFocus estimates the firm has lost an estimated 29% on the investment since establishing the holding in the second quarter of 2015.
The company, which manufactures instruments and equipment used by oil and gas producers to gather seismic data to locate, assess and monitor hydrocarbon-producing reservoirs, has a market cap of $147.87 million; its shares were trading around $10.46 on Tuesday with a price-book ratio of 0.74 and a price-sales ratio of 1.90.
According to the Peter Lynch chart below, the stock is trading close to its fair value.
Geospace’s financial strength was rated 8 out of 10 by GuruFocus, driven by no debt and a high Altman Z-Score of 8.67. The company’s Beneish M-Score, however, suggests its financial statements may be manipulated by management.
Its profitability and growth does not fare quite as well, scoring 5 out of 10. While the company has a moderate Piotroski F-Score of 5 and a one-star business predictability rating (out of five), its operating margin is negative and underperforms 89% of competitors.
GuruFocus warning signs also caution that the company’s revenue per share has declined over the past five years, from $23.23 in 2013 to $5.61 in 2017, and its Sloan ratio of -29.86% indicates poor earnings quality.
The company is working to turn things around, however. Last December, it introduced a cost-cutting program in response to “continuing low levels of seismic product demand.” Geospace hopes to produce approximately $6 million in annual cost savings through this initiative.
Despite these efforts, Lemelson Capital Management, a Massachusetts-based investment management company that owns 10% of Geospace, called for the removal of CEO Rick Wheeler and Chief Financial Officer Thomas McEntire in a February letter. In addition to complaints about their performance as leaders, the firm accused them of “knowingly filing a materially misleading form 8-K with the Securities and Exchange Commission” and listed several other grievances.
Of the gurus invested in Geospace, Nierenberg is, by far, its largest shareholder with 5.02% of outstanding shares. Richard Snow (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss also hold the stock.
Nierenberg’s extremely concentrated portfolio of eight stocks is largely invested in the technology sector, followed by energy. Another oil and gas services company he holds is Flotek Industries Inc. (FTK, Financial).
Disclosure: No positions.
