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Workers flush out water during a fracking operation at a natural gas well in Pleasant Valley, Pa. The procedure helps release natural gas from the rock layers by cracking the shale and sandstone formations using water and sand under intense pressure, allowing the captured gas to seep out. (Robert Nickelsberg/Robert Nickelsberg/Getty Images)
Workers flush out water during a fracking operation at a natural gas well in Pleasant Valley, Pa. The procedure helps release natural gas from the rock layers by cracking the shale and sandstone formations using water and sand under intense pressure, allowing the captured gas to seep out. (Robert Nickelsberg/Robert Nickelsberg/Getty Images)

Schizas' Mailbag

No indication Poseidon is ready to surface Add to ...

Hi Lou,

Poseidon Concepts Corp.

All I read from the quarterly report is a slowdown in future sales. Over a 62 per cent drop in one day! Not normal. As per the release, they have confirmed the monthly dividend for November and December at 0.09 per share.

What gives? Don’t feel like going through another Yellow Media train wreck!

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Have a great day.

Carl

Hey Carl,

Thanks for the assignment.

This will be the third time that I review the case for Poseidon Concepts Corp. The first was on July 29, 2011, when the company was operating as a division of Open Range Energy. The last time was on April 25, 2012, after the shares had been spun out to shareholders of Open Range and operating as an independent public company. At the time Marcel wanted to know what was going on given that the fundamental story in terms of revenue and earnings was bright but the shares were in retreat.

What I observed in April was that trees don’t grow to the sky and that you have to watch all of your investments like a hawk. Also noted was that trading volume was thin, that I didn’t care for the downtrend that was in place, and there was a dearth of price information given the short trading history of the stock. I did advise taking the dividend and the growth which was good until the growth stopped. They missed the expectations of analysts that follow the stock and have been punished for that transgression.

A review of the charts will indicate if there were signals that could have spared investors the whip and if there is an opportunity to grab a 21.26 per cent dividend yield and avoid a further retreat in share value.

The one-year chart could best be described as a vomit inducing ride to hell. It’s never good to own a stock that shreds shareholder value so quickly leaving most with little time to find shelter and preserve capital. There were signs along the trail that there was trouble brewing in River City. The RSI indicated a shift in momentum towards the sell side in late October. By early November the MACD confirmed the RSI signal and in addition the shares had fallen below the 50 and 200-day moving averages.

Those factors in concert with the pending release of third-quarter results would have helped astute investors avoid the cliff.

The six-month chart isn’t providing any indication that the trend is about to reverse itself. Given that the stock has a short trading history it is impossible to say if there is support at these levels. I imagine there will be some buying coming in at these prices as investors are lured to the dividend which management says is safe for the next two months. What cannot be ignored is the fact that the first mover advantage that the company enjoyed is now facing competition in their market and that there are been a slow down in drilling activity.

I think that the case for PSN has lots of hair on it and that you shouldn’t fight the tape. As far as the prospects for sales and earnings go, I would take the the advice of my old pal Peter Jahn. “What don’t you get – it’s off 60 per cent”.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it to lschizas@globeandmail.com.

 

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