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Kodiak Oil & Gas (NYSE:KOG) is in a strong long-term uptrend and it held up very well in the recent correction. Net income has surged from -$3 million to $4million in the past three years, and it has a strong estimated 3-5 year EPS growth rate of 50%. It is a volatile stock and investors willing to take on a bit of risk could be well rewarded in the years to come.

Additional Reasons to be bullish on Kodiak Oil & Gas:

  • Sales surged from $11 million in 2009 to $120 million in 2011.
  • A strong five-year sales growth rate of 86%
  • Annual EPS before NRI increased from -$0.05 in 2007 to $0.17 in 2011.
  • Cash flow per share increased from $0.01 in 2009 to $0.32 in 2011.
  • Net income increased from -$3 million in 2009 to $4 million in 2011.
  • Net income for the first quarter came in at $1.74 million. If this rate is maintained net income for 2012 could come in as high as $6.9 million.
  • A strong quarterly revenue growth of 499%
  • Sales Vs 1 year ago increased by 287%
  • A high beta of 2.48 makes it a good candidate for covered writes or to puts on If you are bullish on the stock.
  • Year-over-year projected growth rates of 250% and 67.3% for 2012 and 2013 respectively.
  • An estimated 3-5 year EPS growth rate of 50%
  • $100K invested since its inception would have grown to $201k.

Suggested strategy

This is a very volatile stock as indicated by its high beta. Consider waiting for a test of its recent lows before deploying any new capital. The ideal strategy would be to divide your money into three lots and deploy one lot if and when it tests its recent lows. The test of the lows should occur on low volume. This indicates that the selling pressure is subsiding. If by some chance it trades down to the 5.50-6.00 ranges deploy one more lot. Consider deploying the third lot on a weekly close above 9 on strong volume. You can adjust this strategy to suit your trading style. One other option would be to sell puts at strikes you would not mind owning the stock at; for example, the Dec 2012, 7 puts or Jan 2013 6.00 puts. You could wait for a test of the 7.00 ranges before selling these puts. If the shares are assigned to your account, your final price will be significantly less than if you purchased the shares outright at 7.00. On the other hand, if the shares are not assigned to your account, you get to walk away with the premium.

Company: Kodiak Oil & Gas

Levered Free Cash Flow = - $1.07B

Brief Overview

  1. Percentage Held by Insiders = 4.7
  2. Long-term debt-to-equity ratio = 0.73
  3. Profit Margin = 7%
  4. Operating Margin = 18.5%
  5. Quarterly Revenue Growth = 499%
  6. Quarterly Earnings Growth = N/A
  7. Operating Cash Flow = 103M
  8. Beta = 2.48
  9. Percentage Held by Institutions = 65.8
  10. Short Percentage of Float = 4.3%

Growth

  1. Net Income ($mil) 12/2011 = 4
  2. Net Income ($mil) 12/2010 = -2
  3. Net Income ($mil) 12/2009 = -3
  1. EBITDA ($mil) 12/2011 = 51
  2. EBITDA ($mil) 12/2010 = 6
  3. EBITDA ($mil) 12/2009 = 1
  4. Cash Flow ($/share) 12/2011 = 0.32
  5. Cash Flow ($/share) 12/2010 = 0.07
  6. Cash Flow ($/share) 12/2009 = 0.01
  7. Sales ($mil) 12/2011 = 120
  8. Sales ($mil) 12/2010 = 25
  9. Sales ($mil) 12/2009 = 11
  1. Annual EPS before NRI 12/2007 = -0.05
  2. Annual EPS before NRI 12/2008 = -0.1
  3. Annual EPS before NRI 12/2009 = -0.02
  4. Annual EPS before NRI 12/2010 = 0.03
  5. Annual EPS before NRI 12/2011 = 0.17

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 50
  2. ROE 5-Year Average = -7.06
  3. Current Ratio = 1.76
  4. Current Ratio 5 Year Average = 3.93
  5. Quick Ratio = 1.5
  6. Interest coverage = 1.60

Conclusion

The markets are still very volatile and a normal healthy correction usually ends off with a retest of the recent lows. Thus, there is a decent chance that the markets could pull back and test their lows before mounting a stronger rally. In general, a great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at. Investors looking for other ideas might find this article to be of interest Arch Coal: Lock In 30% In Extra Gains Or A Lower Entry price.

EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Earnings and growth estimates sourced from dailyfianance.com

Disclaimer: It is imperative that you do your due diligence and then determine if the above play meets with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware

Source: Reasons To Be Bullish On Kodiak Oil & Gas