Oil certainly had an up and down year in 2023, gyrating between fears supply would be curtailed by OPEC, driving prices higher, and fears of a recession, which would crush demand, driving prices lower. And while crude finished the year near the low end of its range, now may be a perfect time to look at oil stocks as it looks more and more like a soft landing is in progress.
One oil stock which had a rough 2023 but which management feels is on track to outperform in 2024 is ProFrac Holding (ACDC). ProFrac manufactures fracking units and pumps for the oil drilling industry. The company has recently been expanding into electric fracking units which reduce both carbon emissions and noise pollution.
2023 caught the company a bit flat footed in matching their units and pumps with the erratic demand. But, as Executive Chairman Matt Wilks put it in the latest earnings release, “"Our current visibility gives us confidence that 2024 will be much improved over 2023. We are well-positioned and excited for the coming year.” Which means this could be the perfect time to pick up ACDC on the cheap.
The company currently trades at 9x earnings, and 6x forward earnings, with a PE ratio of just over 8. Its stock is going for a lowly 0.5x sales and 4.2x free cash flow, which puts it in the undervalued category in my estimation. Its gross margins currently clock in at around 30%, and operating margins close to 20%.
The stock, which is now just under $8, traded as high as $14.00 last year as oil prices rose over the summer. Right now the consensus target price is nearly $5 higher than the current price, which should put the company in a great position if oil bottoms out here.
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ACDC shares were trading at $7.64 per share on Thursday afternoon, down $0.31 (-3.90%). Year-to-date, ACDC has declined %, versus a -1.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Jay Soloff
Jay is a former professional market maker who cut his teeth trading on the floor of the CBOE. With more than 20 years of experience trading and investing, his focus is on making professional strategies accessible to everyone, which is exactly what does in his highly profitable POWR Income and POWR Stocks Under $10 investment advisory services.
POWR Stock of the Week Under $10: ProFrac Holding (ACDC) StockNews.com
