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  • peristentone peristentone Oct 14, 2011 12:31 AM Flag

    Brazilian Short Candidates?

    Regarding OGX, they have a market cap that is over 4x book. A marketcap for an oil and gas producer that executes brilliantly with high return on invested capital and high return on equity is usually 2x to 4x book. How do you justify paying that kind of premium for a company that is to date an explorer and doesn't have substantial execution experience or financials to show that they can execute profitably at full production scale?

    I don't doubt OGX has a large resource. I do not understand why anyone would value them at a level that would be appropriate only after they produce at scale with high ROE and ROIC for years on end.

    Note that this comment is made with the stock being short term very oversold. When they were twice the current price that would have put them at 8x book, and that starts to look just insane. No oil producer deserves a valuation 8x book, and to give that to an exploration outfit transitioning to production looks like cartoon investing.

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