Have you watched your local news lately? No doubt you’ve seen a lonely correspondent standing at the local gas station. They shove a big fuzzy microphone in the face of any poor soul who has the unfortunate experience of trading the contents of their wallet for a tank full of gas.
As they interview person after person, the comments are all the same.
Gas prices are absurdly high.
This is a big problem folks, and I don’t need to tell you about it. You’re experiencing it right now. Inflationary gas prices are eating into your cash faster than hungry dogs chewing up hotdog!
Right now, according to the EIA, the average price for a gallon of gas in the U.S. is almost $3.97. And it doesn’t look like it will retreat any time soon.
The cost of gas is even becoming a talking point for presidential hopefuls. They’re using high prices as an opportunity to talk about energy independence. Don’t they ever give it a rest?
While they talk, I’m going to take action.
The price at the pump makes everyone squirm… but we all know somebody’s making a lot of money from these prices!
That’s how I found FieldPoint Petroleum (FPP).
THE FIELDPOINT BUSINESS
FieldPoint has a nice basic business. They acquire, develop, and operate oil and natural gas property. With wells in Louisiana, New Mexico, Oklahoma, Texas, and Wyoming the gas in your car might have come from some of their wells!
Look folks, this is a “no-frills” business.
They sink a hole in the ground and extract oil and natural gas. As prices increase on the global markets, they get to charge more and more for their product.
They can expand operations by buying either properties with drilling already taking place… or buying into other promising untapped areas.
FieldPoint has varying levels of ownership in 304 wells. They operate 59 of them.
Pretty simple, right?
It doesn’t take a genius to see the profit potential of this business. Pump a little extra oil, make more money. Prices go higher… make a little more money.
Increase production and increase prices and look out… profits will start to gush!
In 2010 the company worked hard to increase production. They have seen some healthy increases – 45% in Louisiana and 68% in Texas alone!
So, let’s take a closer look at the numbers.
FIELDPOINT FINANCIALS
FieldPoint is a company posting record profits. At the end of 2010, the company announced a huge jump in revenue. FPP recognized $7.0 million in revenue, up from just $3.9 million for the year end 2009.
And best of all, Net Income skyrocketed to over $787,000!
So the numbers were good…
But 2011 is off to a slow start. The company just released their first quarter numbers and let’s just say it wasn’t what we were expecting.
Revenue actually fell from the same period a year earlier. How is that possible? Simple… production problems.
While the average price per barrel of oil jumped from just over $76 to well over $94… total production fell by over 18%. The reason… downtime for wells under repair and inclement weather. I get it. It was a rough winter.
Now prices are still high and weather won’t be an issue.
So I’m expecting big things from the company. The rest of 2011 is slated to be a good year.
Domestic oil is hot right now. And so far FPP has stayed under the radar. But that could change at any moment.
The company has solid financials with healthy sustainable growth. Lucky for us the stock is still very affordable…at least for now.
FPP VALUATION
Right now the company’s market cap is around $24 million.
And based on last year’s net income numbers they have a P/E ratio of just over 30x. That sounds a bit expensive… but that’s not the right number to look at.
Consider this… in the first quarter of 2011 the company made a net income of just over $377,000. If they hold this profit level, they should generate more than $1.5 million in earnings… ALMOST DOUBLE last year’s numbers.
That means they’re really trading at a P/E valuation of around 15x!
Now let’s take this one step further. Remember the company struggled with production last quarter. How big could their profits have been if production wasn’t cut short by bad weather and well repairs?
If production fell by 18%, why couldn’t it rebound back to original levels?
A rebound of that magnitude would add an additional 3,789 barrels of production a quarter… at $94 a barrel that’s almost another $356,000 in additional revenue.
Some quick back of the envelope math and that new revenue could add an additional $225,000 to the bottom line.
Given these new numbers, it looks like FPP is trading at a very conservative P/E of 13.9x.
Keep in mind the oil and gas exploration industry is trading right now for a P/E of almost 28.3x
Given these revised numbers, we could see FPP almost double in value next year.
However, management isn’t standing idly by. They see just how undervalued the company is, and they’re buying back the stock every opportunity they get.
FPP began a big buyback effort in 2010. Over the year they purchased 57,200 shares of their common stock. They certainly have the cash on hand to do it. Their financials show more than $1.5 million in cash!
The buyback accelerated into the first quarter with another 17,000 shares being scooped up!
ANALYSIS OF FPP’S STOCK
It doesn’t take a rocket scientist to see FieldPoint’s stock is set up for a nice run.
Chart courtesy of StockCharts.com
As you can see the stock has moved steadily higher since the middle of last year. Recently, FPP has pulled back… giving us a perfect opportunity to jump on board.
Remember, with prices rising, FPP is set to make even more money… and that means a higher stock price down the road.
ACTION TO TAKE
If you like what you’ve read, do your own research… then Buy FPP up to $3.35 a share.
Prices as of May 13, 2011
The “Recommended Price” is as of the date and time of the recommendation (adjusted for splits and dividends), you may pay more or less. “Buy-up-to” means don’t pay more than this price for the stock. If you can get it cheaper, then great! “Hold” means hold if you own it, but don’t buy it if you don’t. “Sell” means sell. Remember to consult your investing professional before making any trade or investment. And remember all investments have some risk.