Hello Lou,
What do you think about Canyon Services Group and its ability to avoid bankruptcy? I am willing to buy it now as a long-term hold and potentially watch it fall 40 per cent as long as it doesn't go bankrupt!
Thank you,
Chris
Hey Chris,
Thanks for the assignment.
Canyon Services Group Inc. (FRC) offers well stimulation services which include pressure pumping used in hydraulic fracturing. In July of 2014 FRC acquired Fraction Energy Services, a leading provider of fracturing fluid management.
Reviewing the management discussion and analysis released with the third-quarter 2014 financial results was like reading The Lord of the Rings when there was peace and tranquillity in the Shire before the darkness descended. Unfortunately the serenity has been shattered and the reading of the fourth-quarter results on March 5, 2015 will be an entirely different experience. Analysts from Raymond James and National Bank Financial cut their target prices in early February which put another warning flag on the track.
The shares of FRC have followed the oil field services sector lower as energy producers have been announcing cuts to their capital budgets in the face of weak energy prices. When your clients are hurting you can be assured that you will be hurting worse. I can't answer your question regarding a potential bankruptcy over a four year hold period. What you can expect from this analysis is to identify the trend, support, and resistance that this stock is exhibiting at this point in time.
The three-year chart is another graphical representation of the sad state of affairs in the energy sector. FRC hit a 52-week high of $20.05 in early July of 2014 but it's been all downhill since. The break below the 50-day moving average in late July was telegraphed by the sell signals generated by the MACD and the RSI earlier in the month. By early September FRC broke below support at $15.00 which was followed by the formation of a death cross in October. In November the shares broke below support at $10.00 and proceeded to touch a 52-week low of $6.10 by late January of 2015.
This snapshot outlines an established downtrend and resistance along the 50-day moving average. I get that this is a bottom fishing exercise but as I often advise, confirm the bottom -- don't anticipate it. Finding new lows with your money tends to be an expensive ride. I understand that you are willing to endure a 40 per cent loss of capital but ask yourself why.
The six month-chart highlights the death cross that surfaced in October, the established downtrend line and the resistance FRC is meeting along the 50-day moving average. At this juncture there is no evidence that we can expect a trend reversal in the short term. The dividend yield of 8.13 per cent may be at risk as the board of directors considers how best to proceed.
With a four-year investment horizon your best approach with this stock is to be patient. The best time to buy a stock is when its going up.
Make it a profitable day and happy capitalism!
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