I predict soon, those who see now what the shorts saw months ago will start selling. This event, coupled with the one-two punch of natural gas drilling drying up and a falling demand for oilfield services will create a "perfect storm" dropping the stock hard into the $3 range (an over-reaction). BUY when it drops because it will bounce up to the $7 range, then back down to $4 or so. Then RES will trundle back up to $8 before falling yet again. By the end of the year, the stock will settle between $4 and $6.
Call me crazy if you like but I see this stock at $5 in 2013 if business fizzles, $15 if it doesn't.
The free cash flow problem is a RED FLAG. Did I just repeat myself concerning cash flow? Yep, I sure did and I'll say it again: the free cash flow problem is a honking hooting big red flag.
This, of course, is only my opinion on what I think will happen. I cannot see the future but this scenario seems probable based upon the financial statements.
Position: I bought before the split and am currently holding, waiting on the possibility of the shorts getting squeezed like a greasy pimple.
I like my shorts the way I like my steak: well done, with all the fat burnt to a charred crust I can scrape onto a tater baked in butter. Mmmmm.
That isn't to say I do not short stocks myself, just that when I am on the other side of the trade I want to be on the winning side. When I saw GE have horrible earnings and the stock shot up I said to myself, "Eccles, it appears what we have here is somebody jacking up stocks regardless of earnings. Let us be careful on the short side of things these days."
If the shorts get hoisted on their own petard (the word petard comes from Middle French peter, to break wind, from the stem word pet, the expulsion of intestinal gas --poot is derived from this) then I will sell on the blast up and buy back after the dust settles if it falls low enough.
If there is no short squeeze and RES begins to tank then I sell, hopefully before holding an empty bag of wind.
Should I be too late, I am prepared to hold and wait a few years. The dividend is good, natural gas demand will pick up as will oil after it falls. There is also the possibility of RES getting bought out by a competitor although I don't consider that likely.
If RES can collect those receivables and fix the free cash flow issue, and oil drilling continues unabated, and natural gas drilling picks up, RES could very well rocket up to $20 but most likely, only some or none of this will occur so the stock will slide into the doldrums.
Am I 100% correct in my estimation? Well, flip a coin. Heads I am right, tails wrong. Then you flip a coin and if it is heads you are right and tails you are wrong.