Dril-Quip is down on what markets are deeming a miss on expectations, but there may be an opportunity to get in at a discount ahead of a recovery. Here’s why.
Texas based Dril-Quip, Inc. (NYSE:DRQ) Is down close to 5% midmorning session in the US, on the release of its first quarter 2016 earnings data. The company posted earnings across the period of $.97 per share – up on consensus expectations of $.83 a share. Despite the expectations beat, markets focused on the first-quarter revenues figure, which came in at $166.6 million – short on consensus expectations of $ 167.4 million.
As well as its first-quarter numbers, Dril-Quip offered some insight into what it expects to see during the second quarter of the year. Specifically, the company expects second-quarter 2016 earnings of between $.60 and $.70 per share, and has expanded its full-year revenue projections to calculate a full year 2016 earnings per share of between $2.45 and $2.65.
Whether the company can meet these projections or not will play a vital part in its market capitalization going forward. Back in 2013, Dril-Quip traded for $116 share. At last close, shares could be had for just short of $59. This represents a 50% decline across the period, and gives the company an overarching bearish trend to contend with as we head into the second half of 2016. Additionally, the latest numbers represent a more than 50% decline in net profit, and if this is anything to go by, chances are the remainder of the year will feature further selling pressure. At its current market capitalization of $2.2 billion, the company is at the low end of its 52-week range. With a price-to-earnings ratio of 11.74, however, it looks cheap, and this may indicate an oversell. Cash on hand at last count came in at a little over $381 million, for total current assets of $1.1 billion.
One to watch, but with a keen eye for risk. As part of a wider, managed and risk differentiated portfolio, companies like this make for an attractive small-scale speculative allocation. Don’t bet too heavily on a recovery, however.
DISCLAIMER: There is a substantial risk of loss with any speculative asset, especially small cap stocks. The opinions expressed are those of the author, and do not constitute recommendations to buy or sell a stock. Do your own research before committing capital.