Should You Buy This Energy High-Flyer?

Logan International has been on an absolute tear this year, but does that mean it’s right for your portfolio?

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Oilfield service and equipment manufacturer, Logan International (TSX: LII) has posted gains of more than 160% year to date, which makes it an awfully tough stock to ignore. This isn’t one of those penny stock scams either, where shares triple overnight from $0.10 to $0.30 and everyone wakes up a millionaire. Logan International is a proper company with multiple revenue streams, and today we’ll take a closer look at what the company might have to offer investors.

Business and trends
Before we get to the stock’s recent run-up, let’s have a look at how Logan International makes its money. Like fellow oilfield service companies, Pulse Seismic (TSX: PSD) and Total Energy Services (TSX: TOT), Logan does well when oil producers do well. Unlike those two companies however, Logan’s operations are geographically diverse. Pulse Seismic is limited to the oil game in western Canada, while Total Energy Services covers that spread, plus the Dakotas. And that’s it. Logan International doesn’t belie its moniker: it has a presence in North America, South America, North Africa, Europe, India, China, and Southeast Asia.

The fact that the U.S. is currently producing more oil and gas than it has in decades bodes well for Total Energy Services, but it’s even better for Logan because it does business in all of the country’s most important shale plays: the Bakken, Marcellus, Permian, and Eagle Ford.  The company has developed a proprietary system for multi-zone hydraulic fracturing, a procedure that is all but essential to producing in oil and gas shale plays, wherever they may be located.

The energy renaissance in the U.S., largely driven by the development of the aforementioned shale plays, has had an impact on Logan. The company has posted some impressive numbers lately. It increased full-year revenue 26% in 2012, year over year; and EPS nearly tripled. In the first quarter of 2013, revenue was up 20% year over year; and EPS doubled.

To be sure, Logan is a small company that has grown by and large through acquisitions over the past few years, but its global reach and its strategic presence in North American shale plays speaks volumes about its growth potential.

Shares soar
Shares of Logan International opened the year at just over $3.00, slowly climbing to $4.00 by February, where they promptly flattened out for two months, before starting their ascent on April 23. Shares really took off in May when the company made two important announcements.

First, the company announced first quarter earnings on May 9. The report was strong, as revenue was up and net earnings nearly doubled to $5.24 million. Working capital and total assets were up year over year as well.

The second announcement came on May 22. The Board of Directors announced it was undergoing a process to investigate “strategic alternatives” to enhancing shareholder value — including soliciting proposals for a buyout – believing the company’s shares were undervalued. The market agreed, and shares have been climbing ever since.

Bottom line
Some might suggest that there is a fair bit of buyout speculation driving up the price at Logan, and that may certainly be true, but only to an extent. It is hard to completely discount the strong performance of this company over the past few quarters. It is the type of success that will drive future gains if management makes the right decisions going forward. Logan International reports second quarter earnings in early August, and investors looking for continued growth should watch closely.

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Fool contributor Aimee Duffy does not own shares of any companies mentioned.  The Motley Fool doesn’t own shares in any of the companies mentioned.   


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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