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Stock Pick by piccolr

WRES: Fundamental Analysis of Warren Resources Inc

Start trading WRES with real money!

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4 ratings
Posted 3377 days ago on 4/27/08

WRES will go UP
$22.00 on 4/27/09
$0.09 (-99.29% from time of market call)

Warren Resources Inc. (NASDAQ: WRES) is a small-cap independant oil & gas company involved in the on-shore exploration and production of oil and natural gas. Their natural gas operations are located in the Rocky Mountains and their oil drilling operations take place in the Los Angeles basin of California. WRES has experienced strong growth over the past year. Fiscal year 2007 sales grew ~70% over those of Fiscal 2006. This sales growth is much higher than similarly sized firms in their industry. Accompanying this strong growth their gross margin also increased dramatically from 50% to 59%. Over the same period net income increased 77%. Attaining strong growth has not forced WRES to take on large amounts of debt. Their debt/equity ratio is a very low 0.14. Additionally they covered their 2007 interest expense 5.25 times with operating income. These ratios show that WRES is a very solvent company. Liquidity is their only short-fall. They have negative working capital, indicated by a current ratio of 0.65 and a cash ratio ([cash+cash equivalents]/current liabilities) of only 0.37. These two liquidity measures are higher than most other similar sized firms in the same industry though. 2008 EPS is expected to be $0.56. Assuming that WRES trades at a P/E in the range of 30-50, I have given them a 12 month target price of $22. Currently that is a HOLD for me. Below $12.30 WRES is a strong BUY.

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Comments

Posted 11/26/2010, 6:29 pm

Of course your whole thesis fell apart when the market dived in 2008. Would love to see you revise your analysis of this company at this time. Rating=5 Analysis excellent for company, but market failed.

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