This one came in from a reader, and unfortunately it took me a week or so to get to it … it has climbed 20% already, though if the teaser copy is accurate who knows where it will go.
This is from Andrew Mickey at Breakaway Investor, who we’ve heard from before a few times. This teaser is for a technology that’s required to help boost output from dwindling natural gas wells, which in the US may end up being a big business, indeed.
My reader told me the solution to it, and I looked into it to confirm — the teaser is here, and here’s a little more info:
This company is serving the fastest growing part of the natural gas market.
Mickey met with the company and was wowed at how busy they were, including a five month backlog.
They have a proprietary product of some kind for natural gas compression.
And they’re not necessarily subject to commodity risk: ‘We don’t care about the price of natural gas,’ [the company official] said, waving his hand. ‘Anyone who wants to be in this business tomorrow has to come to us.’
The rest of the argument is a fairly standard one for natural gas plays — new power plants are largely gas fired for pollution reasons, natural gas production is declining in many parts of the US, natural gas is hard to transport and thus hard to import, and natural gas is good and kind and right.
There’s also a quote from one of the company officials, which includes his name for an excellent clue: ‘We’ve got the Cadillac of Natural Gas compressors.’ – Jim Hazlett
So, this company that Andrew Mickey is touting for Breakaway Investor is (or was) a $16 stock, and his prediction is that it will double in six months, quadruple by 2008, and be up 500% by 2010.
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So really, not that big a deal that it has already jumped 20% in the last couple weeks, eh? No reason to be testy with the Gumshoe for his tardy ways?
This company, thanks to a generous reader, is …
Natural Gas Services Group, Inc. (NGS)
I know, real snore of a name, eh? The numbers certainly indicate that some big growth is expected and that the company sells something that investors really think is in demand — the trailing PE is 28 and forward is 19, a far cry from most of the more standard oil service companies that are seen as being at cyclical highs and relegated to single digit multiples.
As I said, this one’s already up quite a bit — it was at $16.21 on May 29 when I got the email, and it’s above $19 now after getting a recent upgrade from Morgan Keenan and a nice mention from Barron’s last weekend (and, one expects, a bit of newsletter hype).
They don’t have any net debt, their margins and price/sales numbers look pretty nice, but not much different from other companies in this equipment sector of the business. They appear to lease their equipment rather than sell it, so that may have some impact on their earnings or make them stand out somehow, but that’s just a guess. And as far as whether or not their technology is really proprietary, or whether other folks agree that their compressor is the “Cadillac,” I don’t know. One might be forgiven for imagining, however, that there are other compressor manufacturers, and that Toyota outsells Cadillac by a wide margin.
The other companies noted in that Barron’s article, by the way, like OMNI and PDC, didn’t necessarily see the same kind of bump — some look downright cheap on the PE, though none of them are in exactly the same business.
So … thanks to another reader for sending in a good solution. I’ve got a few others in the hopper here, will try to catch up, but if you’ve sleuthed one that you think will move fast and want to post your solution before it runs and take credit for it, feel free to do so in over in the forum as a few of your colleagues have … or send me an email with lots of capital letters and a plea for expediency.
And actually, I just noticed that someone posted a solution to a similar tease for this same company over there, too, so you can read what they have to say if you like. I don’t know if one of these folks is the same person who emailed me, but kudos to all the sleuths.