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Friday, January 6, 2012

Why ESTE may be the Next Big Oil Momentum Stock

Years ago when oil stocks were strong, I picked a low float oil stock on the AMEX PDO at $5. In a few weeks it hit $45. Is ESTE may be the Next Big Oil Momentum Stock?

Earthstone Energy, Inc.(ESTE) has only 1.7m shares outstanding and a public float of 1.2m.

ESTE had EPS for the last 6 months of $0.81. The oil revenue for the last 3 months has been booked at an average price of $87 per barrel of oil and they did $0.43 EPS for the quarter. (Recently oil is over $100 per barrel). Reserves increased 2% and the Company has been investing in new Bakken wells participation. Read 10-Q

The Company is expanding with new wells in the Bakken territory (where they mostly reside) and is partners with some of the major Bakken oil players CLR and BEXP.

Recent comment from their President in a press release:

"The Company expects to continue its strategy of participating in drilling non-operated, horizontal wells which now includes both the Bakken and Three Forks formations." Singleton continued, "The next few quarters should prove to be exciting. In addition to the new wells mentioned above coming on production, we are evaluating two non-Bakken opportunities which could positively impact the Company's reserves and production and hope to announce progress on these ventures in the future. With numerous efforts both underway and in the planning process, we eagerly anticipate increasing the Company's profitability and cash flow." Read Press Release

Bakken oil stocks have been very strong as of late. Domestic oil production is a theme growing stronger each day. KOG, CLR, NOG are 3 of them.

CLR is at $75 and is expected to do $2.53 EPS this year for a P/E of 29 See Numbers

KOG is at $10 and is expected to do $0.25 EPS this year for a P/E of 41 See Numbers

NOG is at $25 and is expected to do $0.63 EPS this year for a P/E of 40 See Numbers

Let's assume that ESTE only conservatively doubles first half EPS to end the year at $1.62 EPS. Applying the P/E ratios of CLR, KOG, and NOG would give ESTE a price range of $53 to $75. It is currently at $16. Throw in the fact this has a minuscule float and number of outstanding shares and that is why I think ESTE has potential to be the next big oil momentum stock. I am long at $15.75.

Low float stocks can be volatile and dangerous and are not for chasing or large positions in my opinion.

No comments:

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