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Summary

  • The stock is dropping from overbought territory on a technical basis.
  • The stock is inexpensively valued based on 2015 earnings estimates.
  • Financial efficiency ratios seem to be rock solid.

Kodiak Oil & Gas (NYSE:KOG) is an independent energy company focused on the exploration, exploitation, acquisition and production of crude oil and natural gas in the United States. On February 27, 2014, the company reported fourth-quarter earnings of $0.17 per share, which missed the consensus analysts' estimates by $0.01. For the past year the company's stock price is up 80.05%, while the S&P 500 (NYSEARCA:SPY) has gained 20.85% in the same time frame. This is my second foray in the stock, and the last time I was in it I made 11.84% or 153.05% on an annualized basis. I've already purchased a batch of the stock in late October 2013 for my growth portfolio, and am up a whopping 1.33% on the batch due to a bad market tape for growth stocks. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if right now is a good time to purchase more of the stock for my portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 25.87, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 12.63 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $1.07 per share and I'd consider the stock inexpensive until about $16. The 1-year PEG ratio (1.16), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 22.27%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 22.27%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 44.02%.

Financials

On a financial basis, the things I look for in general are the dividend payouts, return on assets, equity and investment. The company does not sport a dividend to speak of, but is sporting return on assets, equity, and investment values of 4.3%, 12.6% and 7.4%, respectively, which are not that great of values. In this particular instance, I will forego the dividend aspect of the financials because the stock is in my growth portfolio; and in the growth portfolio, a stock does not have to have a dividend.

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock dropping from overbought territory as of 17Apr14 with a current value of 64.49. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height, indicating bearish momentum is starting. As for the stock price itself ($13.45), I'm looking at $13.58 to act as resistance and $12.86 to act as support for a risk/reward ratio which plays out to be -4.39% to 0.97%.

Conclusion

This is a high flying growth name because it has exposure to the Bakken Shale so you may witness some whiplash if you're in the name. Fundamentally the company is inexpensively priced based on future earnings estimates and fairly priced based on next year's earnings growth potential. Financially, the efficiency ratios are rock solid. On a technical basis I believe the stock has some room to the downside. Due to the bearish technicals, high near-term earnings growth expectations, and high long-term earnings growth expectations I will not be pulling the trigger here right now.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long KOG, SPY. 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.

Source: Getting Bearish On Kodiak Oil & Gas