Fast-Growing Synergy Resources Is Too Cheap At Under $4 A Share

| About: SRC Energy (SRCI)
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Oil prices have fallen some 10% since September 14th. Stocks in the energy sector have mostly followed suit. Synergy Resources (SYRG) has been one of the few to buck the pullback in the energy complex due to several positive developments so far this quarter. Given its valuations and impressive growth prospects, it should be on aggressive growth investors' radar.

Three third-quarter positives for SYRG:

  • Both Wunderlich and Global Hunter Securities initiated the shares as "Buy" in the third quarter. Johnson Rice also initiated the shares as an "overweight" on Wednesday.
  • Insiders have added around $200K in new purchases in the third quarter.
  • The company recently drilled its 100th well in August and is well on its way to doubling its gathering capacity.

"Synergy Resources Corporation engages in the acquisition, exploitation, exploration, development, and production of oil and natural gas properties primarily located in the Wattenberg field in Denver-Julesburg Basin in northeast Colorado." (Business description from Yahoo Finance)

4 additional reasons Synergy is a good speculative play at under $4 a share:

  1. Revenues are exploding at this small producer. The company posted $10mm of revenues in FY2011 but is on track to book over $25mm in sales in FY2012. Analysts are looking for over $45mm in revenues in FY2013.
  2. Synergy has around $25mm in net cash on the books (approximately 15% of market capitalization) and sells at just 9 times operating cash flow.
  3. The stock is cheap at just over 8 times forward earnings and it sports a five year projected PEG of under 1 (.70).
  4. Earnings are rapidly increasing. The company lost 5 cents a share in FY2011 but should make more than 25 cents a share in FY2012. Analysts have Synergy Resources making approximately 45 cents a share in FY2013.

Disclosure: I am long SYRG. 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.