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Metal rods manufactured at the Mississauga Boart Longyear plant. Some driller companies, including Boart Longyear and Geodrill, are banking on West African nations to continue to drive exploration growth.Deborah Baic/The Globe and Mail

Hi Lou,

What are your thoughts on Geodrill Ltd.? Do you ever see it going to 2.50?


Andrew in Toronto

Hey Andrew,

Thanks for the assignment.

Geodrill Limited, as their logo announces, provides drilling services in West Africa. The rub is that their client base is in the mining industry which has been beaten like a rented mule over the last couple of years. If you take a look at the company's financial statements you can see a trail of declining revenue and earnings – neither of which will drive a stock higher.

In addition, you should pay heed to the average daily trading volume which over the last three months is reported at 24,700 shares and over the last thirty days has dropped to only 12,627. Low volume increases the risk associated with a stock because of a lack of liquidity. To further exacerbate the situation we are looking at a publicly traded company with a market capitalization of $37.41-million. The lower the market capitalization the more vulnerable a company is to competition from bigger rivals.

An examination of the charts will form the basis of my analysis.

The three-year chart provides a classic example of getting out while the getting is good. The double top that formed in the spring of 2012, followed by the breach of the 50-day moving average were two of the warnings signs that surfaced at a time the shares were trading at $3.25. When the shares melted through the 200-day moving average in May of 2012 it was all over but the crying. Since then the only things GEO could offer investors was a series of lower highs and lower lows plus resistance along the 50-day moving average.

The six-month chart depicts a stock that has made a nice move higher in 2014 but on thin volume which always puts a caution flag on the track for me. The MACD and the RSI both generated buy signals in late December taking the shares from a rock bottom near $0.60. Currently the momentum indicators look to be turning lower as investors who reaped a 50 per cent gain in just over a month harvest their winnings.

Make it a profitable day and happy capitalism!

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