Part I: The curious case of RPC
This is my response to bigmoneymine's questions in the thread "oil service sector taking a beating 6-Mar-12 02:38 am " I have broken it up into several parts for easier reading.
Q: "I'm trying to understand why this is not a $20 stock"
A: This stock has never reached $20 in its entire history. $10 is fair value, plus or minus two bucks. It could rise to
$20, could fall to $5 based on many factors like a new drilling frenzy or the ceasing of all new drilling by political diktat.
$20 per share for RES is, in my ugly opinion, an unrealistic valuation based on fundamentals but it could reach $20 based on whim, fancy, or an irrational stampede into the stock. Go look at LUU to see a stampede taking place. Fundamentals flew out the window on that one.
Q: "Why haven't more institutions piled on this thing?"
A: When 71% is held by insiders there isn't much piling-on they can do, I would think. Maybe they are busy piling-on elsewhere such as on LULU. It may be because this year was a leap year, or because Jupiter isn't appearing in a particular constellation, or maybe because someone in a cubicle didn't feel like pressing the "Pile On" button.
"The 70% insider ownership bothers me"
This company is for the benefit of Gary and Randy Rollins, Rick Hubbell, Henry Tippie, Ben Palmer, and Linda Graham, among others. Wilton Looney is 91 years old so he needs you buying shares to pay for his viagra and pappy diapers, as well as a chalet on Coco Beach for his grand kids. These people are also part of Rollins, Inc. and Marine Products Corporation. They sit on many boards gobbling stock options and director's compensation fees from several companies.
You the common peasant shareholder are nothing but a resource to be fleeced for whatever Big Boy Rollins wants to do, especially his lucrative stock options compensation plan. This is true of most companies.
Enjoy the dividend, take profits at will, but don't fall in love with the stock. Keep watch and be diligent. The insiders are not your buddies, not your friends. They get the cake and you get the crumbs. Wouldn't you like a 70% share of the profits? They sure do! Start your own company and issue your own shares if it bugs you.
Q: "the 28% short position bothers me. Why are so many traders trying to short this thing? That's awfully high."
A: Next year, expected Projected EPS Growth will be -4.32% Oil is expected to fall to $70 a barrel. NatGas expected to stay flat or down. Share price will fuh-fuh-fuh-fall. Look out below!
The financial statements may also tell us a few things. I am no accountant (nor a stock expert for that matter) but here is what I see:
1) Receivables went from $149 million in 2009 to $472 million in 2011. RED FLAG. BIG RED FLAG.
Why is RES not collecting the money it is owed? I suspect it may be the weaselly Chinese. If it is them, RPC better send some tough, hard men to deal with these seedy, slimy, black-hearted snake people. The Chinese take all they can get and give back as little as they can, smiling and bowing politely all the while considering whether it is more profitable to murder you.
That is how they do business. You playing nice and whining "When you going to pay me? Please pay me. Please?" means you won't ever get paid because you are weak and pathetic. You have to be tough with these guys. They play to win, they play for keeps. If Mr. Rollins and his crew are "too nice" maybe he should look into sending some Mafioso over there to bust a few kneecaps to get paid. Maybe RES is waiting for better conversion rates from yuan to dollar.
Ummm hate to call you out but:
1) the share price was in the mid (to high) $20s for the better part of last Summer & early Fall.
2) then as for their Accts Receivable....who do you think owes them these receivables? the bankrupt/the freeloaders?? Hardly! Its the energy companies that the Dems want to go after because of their profitability ($$$$)!
I was looking at a decades+ chart and a 3-year chart and it appeared $18 was as high as it ever got. The chart appeared to show it never reached over $18.
I stand corrected on that. Apparently $20 was the ceiling for the stock. It touched it a few times but never broke over it for long.
You are such a stupid fool; RES never hit $20 because it had five 2 for 3 splits since 2005!!!!
It also payed plenty dividend that need to be deducted from stock price.
That is a total of X7.5 or $75 per share at current $10 price.
What a stupid short....
2) Inventory went from $10 million in 2009 to $47 million in 2011.
Is RES utilizing this growing inventory or is it sitting in storage unused/unleased/unsold? A growing inventory means demand for its services is declining but it could also mean RES is stockpiling for expected future growth. The shorts are betting that demand will decline. If the inventory hasn't been paid for and is just sitting there costing money eating into profits,
look for a big drop in share price. A big unused inventory shows management is too incompetent to utilize its resources properly and turn product into profit.
3) Accounts Payable has ballooned from $50 million in 2009 to $123 million in 2011. RED FLAG. Why is RES not paying off these creditors? Cash flow problem? I suggest RES work a little harder collecting some Accounts Receivable.
4) Cost of Goods Sold was $394 million in 2009, $606 million 2010, and $993 million in 2011.
Why have these expenses risen so high? It hasn't risen so exponentially for similar companies like HAL. Am I to believe costs are rising almost 60% a year for RES? Is management lining its pockets, weaving in "compensation" by jacking up COGS?
Are they hiding something in these expenses? RED FLAG.
5) Free Cash Flow was negative $77 million last year. There is Negative Levered Free Cash Flow. *** BIG RED FLAGS ***
Net Free Cash Flow = Operation Cash flow – Capital Expenses to keep current level of operation – dividends – Current Portion of long term debt – Depreciation
Here we are with oil at very high prices, drilling going on everywhere, and RES is having trouble finding cash to pay for operations. Somebody get on the phone and tell all short sellers to get ready. Oh wait, they are already positioned for the kill and there aren’t even any more shares available to short.
I see a lit fuse and it is slowly sizzling towards a stack of dynamite. Only an external influence, such as a market mover, can step in and put out the inevitable blast which will leave a gaping hole in the ground in which all the long holders will fall into, and half of them will be staggering around wondering what happened when all the while people pointed to the lit fuse and the dynamite but these funny shareholders kept saying it will rain and snuff out the fuse before reaching the TNT.
Didn’t these dummies see it was a waterproof fuse?