Americas Petrogas: Undervalued And Doing Something About It

| About: Growmax Res (APEOF)

Americas Petrogas (OTCPK:APEOF) recently reported second quarter earnings that featured a 70% rise in net revenue and a strong increase in sales volume. Now trading around $1.20 a share, according to Yahoo! Finance, the mean target price for the company is $4.65. In an effort to enhance shareholder value, Americas Petrogas has hired the investment banking firm of Jefferies Group LLC.

As its sole financial advisor, Jefferies LLC will consider, "... a range of strategic alternatives, potentially including joint venture(s) on one or more of its 14 operated blocks covering more than 2,000,000 acres, a sale of specific assets, a sale or merger of the Company, as well as continued execution of the Company's business plan."

In addition to its improving earnings, Americas Petrogas received a very favorable independent study its shale resources in Argentina. As noted by Barclay Hambrook, the President and CEO of Americas Petrogas, "Given the sustained progress and strong commitment of industry to the Vaca Muerta Shale trend, and Americas Petrogas' several recent operational achievements, we believe now is an appropriate time for the Company to explore strategic alternatives to unlock shareholder value. We selected Jefferies to assist us due to its broad expertise and market leadership in shale transactions."

In addition to improving revenues, Americas Petrogas has a very solid balance sheet. There is no debt, which is always attractive to a buyer. There is plenty of cash as evinced by the current ratio of 3.58, the quick ratio of 3.51, and the cash ratio of 2.90. That is also very appealing for those looking to purchase.

Most of all, Americas Petrogas has holdings in Argentina with a great deal of potential. Due to the actions of its government, investors have been put off by companies operating in Argentina. However, YPF (NYSE: YPF), the Argentine oil company, is up almost 60% for the last year of market action. In addition, Americas Petrogas is operating in a joint venture in Argentina with Exxon Mobil (NYSE: XOM), the world's largest oil and gas entity.

It is certainly an apposite time to be looking for a buyer of an oil firm. Repsol (OTCQX:REPYY), the Spanish energy giant, recently announced that it was looking to spend up to $10 billion on North American energy assets. Exxon Mobil is rumored to be interested in BP (NYSE: BP). CNOOC (NYSE: CEO), the Chinese firm, has invested heavily in both Canada and Argentina.

The 52-week high for American Petrogas is $3.10.

Over the last five years, it has traded for around $4.50 a share, at its peak. With the market still strong for oil companies and the recent bullish report on its holdings, the future is promising for Americas Petrogas, especially with the market treating investments in Argentina better. Up 12.96% on the announcement of the hiring Jefferies LLC, there should be more gains ahead for the shareholders of Americas Petrogas, without or without a sale.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCPK:APEOF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.