On Thursday, shares of Frontline (FRO) spiked more than 14.7% on relatively heavy volume.
Then shares jumped another 38% on Friday!
While the spike was good news for shareholders, it comes at a time when the stock is sitting just off its 52-week lows.
The move likely came from news that Zacks has identified the stock as an underpriced performer positioned for solid gains going forward.
Here’s why I think Zacks is wrong about this oil tanker company…
Based on its Q3 2014 results, the Bermuda-based company’s multiple weaknesses are evident – such as its poor profit margins and overall disappointing stock price performance.
The gross profit margin for Frontline sits at 19.87%.
Now, although that represents a healthy increase over the 11.9% figure for the same quarter last year, the company’s gross margin significantly trails both its industry and sector peers by 48.4 % and 25.7%, respectively.
Additionally, FRO’s net profit margin of -65.75% significantly underperforms when compared to the industry average.
Not only have the company’s margins disappointed, but the stock price has disappointed, as well.
The stock has performed poorly despite all attempts to break out to the upside, and in spite of increasing earnings improvements.
In Q3, revenue dropped slightly, by more than 1.8% – although the decrease in revenue didn’t harm the company’s bottom line.
For the third quarter, the company reported diluted earnings per share (EPS) of -$0.81 against last year’s same quarter report of -$1.54.
While the company has seen improved EPS in the most recent quarter, the earnings remain volatile, and will likely trend down with falling commodity prices.
You see, commodity prices in general – falling oil prices, specifically – will go a long way in depressing the company’s earnings well into the future.
And hanging over Frontline right now is a $190-million payment due in April. The company has made minor progress in paying it down, but still has approximately a $150-million remaining balance. Combined with a current ratio of just 0.80, FRO will likely be strapped for cash for the foreseeable future.
Avoid the noise, and float past this albatross.