TPS Trade Alert – January 8, 2014
January 8, 2014
Recommendation:
Buy Global Geophysical Services (NYSE: GGS) up to $1.80 per share.
Trade Rationale:
Investors searching for high upside micro-cap stocks often look to oil and gas production companies. After all, if a small E&P company makes a big splash, the share price can soar.
But don’t forget, there’s a fair amount of risk with E&P companies as well. Uncertainty and delays are common in the industry.
On the other hand, savvy investors realize E&P companies can’t operate without proper equipment and services. And, equipment and services companies in the oil and gas industry can have just as much upside as the E&P companies themselves.
Yet, E&S companies don’t carry as much risk as E&P companies. That’s because the products or services don’t rely on factors that are as hard to predict as the ones involved with drilling wells.
As such, we’ve found a perfect E&S company in the oil and gas industry that has been completely ignored by most investors.
That company is Global Geophysical Services (NYSE: GGS).
GGS provides an integrated suite of seismic data solutions to the oil and gas industry. The company’s offerings include seismic data acquisition, microseismic monitoring, and data processing and interpretation services.
Essentially, GGS delivers data that enables the creation of high resolution images of the Earth’s subsurface. These images reveal complex structural details that are key to oil and gas production and exploration companies.
Here’s the thing…
Seismic images and data allow crisp views of faults, fractures, and layers. This allows oil and gas companies to analyze rock properties, fully characterize reservoirs, and engage in robust well planning.
The results are more efficient and cheaper production for oil and gas companies. And what company wouldn’t want that?
What’s more, GGS is in great position to increase its business due to rapid growth in seismic spending.
In fact, 2013 was expected to be a record year for worldwide seismic spend. Total spend for the year was expected to grow by 19% to $9.5 billion. Plus, spending is expected to grow by an average of 8% annually.
As oil and gas wells become more difficult and expensive to produce, seismic data is going to become more and more important.
Finally, GGS plans to capitalize from the growing demand for seismic data by further expanding internationally and focusing on cutting edge technology.
From a financial standpoint, the company is going through something of a transition. Revenues and profits were down in 2013 as management decided to shift into higher margin activities and exit costly businesses.
Despite the transition, the small company was able to generate $217 million in revenues for the first nine months of the year. Plus, over the same period the company’s Cash EBITDA was nearly $34 million (a non-GAAP measure focusing on primary business metrics).
GGS holds just under $17 million in cash compared to the $344 million in long-term debt. However, the company has recently refinanced its senior credit facilities to extend the maturity into 2016.
Not to mention, the company has strong operating cash flow of nearly $79 million per year. As such, making interest payments shouldn’t be a problem in the coming quarters.
Despite strong revenues, solid cash flow, and a rapidly growing market, GGS is trading at bargain basement prices.
As of this writing, the shares were priced at just 0.22x sales and 0.99x book value. Basically, the market is substantially discounting future growth potential for the company and ignoring its strong history of robust sales.
Let’s grab shares in GGS before other investors realize how cheap it actually is.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Global Geophysical Services |
| Ticker: | GGS |
| Recent Price: | $1.56 |
| Market Cap: | $59.5 million |
| Avg. Daily Volume: | 297,051 shares |
Chart:
Category: TPS Trade Alert
