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Flotek Offers a Solid Buy Entry


The drilling and production supplier missed Q1 revenue estimates, but investors shouldn't be concerned over the long haul.

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Flotek Industries (NYSE:FTK) reported first-quarter earnings last night. It met expectations on earnings but missed revenue estimates. (See the press release here.)

After reading the report, I'm happy with the direction in which the company -- which produces chemicals and drilling/production equipment, as well as provides oil-field-related services for energy and mining companies around the world -- is headed. The revenue misses occurred because of older legacy pieces of the business and because of the integration of some key acquisitions made over the last several years. The current focus continues to be on its Energy Chemical Technologies segment and on its improvements in research and development.

This was my "Stock of the Year" in the article "The 10 Stocks to Watch in 2014," published on Minyanville in November 2013. The reasons I gave then included the following:
  • Its position as a provider of chemicals for the fracking industry
  • A P/E ratio of 20
  • A PEG of approximately 0.5
  • An ROE of 29
  • Net margins of 15% versus 10%, which is more typical in Flotek's industry
  • A current ratio (the ratio of current assets to current liabilities) of 1.5
  • The prospect of doubling in value in a year and doubling again in five years

Analyzing Flotek using technical analysis, the stock is trying to hold the 50-day moving average after undercutting it.

This situation provides both a nice risk-to-reward trade and a nice entry point for those looking for either a swing trade or a long-term momentum entry.

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