Matador Resources Company (NASDAQ: MDTR), A Chartist’s Dream
Matador Resources Company (NASDAQ: MDTR), A Chartist’s Dream
On December 28th 2012 the S&P 500 stood at 1402, with many folks around the world worried that US politicians had the gall to let the country go over the fiscal cliff. The negotiations resulted in a temporary band-aid that put the market at ease, despite no long-term agreement. Slightly under a month and the S&P has rocketed to 1,502.00, as there is profound optimism that companies will outperform this year. With the VIX index around a 5-year low, there is little volatility and a lot of complacency in the market. Also, for the second week in a row jobless claims have come in under 350k. The trend is consistent with modest hiring growth but still with ample slack in labor market due to limit wage pressures. The most recent Fed Beige Book called wage pressures as stable, subdued or contained.
In the equity markets many stocks are at multi-year highs. Most traders have seen the rally being led by companies in the energy sector, as this group along with the financials has been powering the indexes higher. Staying with what is outperforming generally works in the near term, but are some companies that have been overlooked and are at cheap valuations.
Matador Resources Company (NYSE: MTDR) is an independent energy company based in Dallas, Texas. On January 7th the company announced that is its average rate of production for December 2012 was about 5,800 barrels of oil per day and 34.6mm cubic feet of gas a day. The daily oil rate is up almost 75% from the company Q3 2012 average daily production of about 3,300 barrels, with an increase of almost 13-fold when compared to its 2011 4th quarter daily oil output of 450 barrels.
On December 6th 2012, the company announced that it intends to shut-in 15-20% of its production capacity during the year, as it tries to drill and complete certain wells that have been under development. Most of the interference in production will be scheduled for the first half of the year. Despite some minor bumps in the company’s operations over the next few months, there are no changes in the company’s earnings expectations for 2013. The company does intend to borrow additional funds to expand its oil and gas reserves, which is expected to occur the second half of 2013.
MTDR has a 52-week range of $7.70 and $12.33, and is currently trading at $8.02. When viewing a 6-month chart the trend in the stock appears horrendous, as time again the price fails and makes new lows. Technically there is a definitive move to the downside, and fundamentally the stock has been hit with some negative news. But when taking a closer look at the chart there was a pattern of a clear triple bottom in the stock. The chart pattern is used in technical analysis to predict the reversal of a prolonged downtrend. It is one of the strongest buy signals when charting, and occurs when the price of an asset creates three troughs at nearly the same price. In MTDR there were three bottoms in the stock all seen between $7.85 and $7.90. With strong growth expected in production output and the current chart, MTDR could be a nice buy around $8.00 a share.
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Good company a very good entry point. I’m a buyer, especially considering the triple bottom in the stock.
Analysts like the stock but the lack of cash and large debt load could help propel the stock lower. Despite finding continued support, the support line is downtrending and it appears we can expect that downtrend to continue with earnings expected to decrease over 200% this year.
A very good entry point. But the large debt load is troubling.
Definitely a gamble. The technicals are fairly promising, but technicals aren’t always right. The price is good considering the 52-week range, but I lived in Houston for a while and know that even when the oil industry is booming, some of these small independent drillers and producers don’t make it. As things stand now I’d personally have to stay away. Now, if we see a definite upside break, say at least above 8.75 to 9.00, I might be convinced that Matador’s fortunes have finally turned for the better.