Small Cap Talk: Flowtek Industries

I usually don’t dwell much into small cap company investments, but one exception is Flowtek Industries (FTK). Flowtek is a supplier of drilling products to the energy and mining sector. Their core business revenue comes from specialty chemicals that they sell to the oil services industry. These specialty chemicals help soften up the hard layers in the earth that prevent oil and gas companies from extracting the most amount of oil out of each oil well. Some of their big name customers include Schlumberger (SLB) and Haliburton (HAL), who uses Flowtek’s drilling products.

The reason for their dropoff from a high attained in October of $55/share to their current valuation of around $17/share is due to two straight quarters of missing analyst expectations. They missed expectations by $0.02 last quarter and $0.05 the previous quarter. Four analyst currently expect a $0.32 per share earnings during their next earnings release and a 39% increase in revenues in the same quarter from the previous year.

With oil prices at an all time high, Flowtek is poised to be able to rebound in the next half a year and should show some promising results as their specialty chemicals are their bread and butter product.

Notable Signs of Rebounding

  • 2 analysts have initiated this stock as a buy in the last 2 months
  • 3 straight years of increasing operating cash flow (note this company has been around since 1983)

What May Keep it Down

  • they have missed earnings two quarters in a row and being a small cap company, may take longer to recover toward beating estimates
  • any negative news hurts small cap companies much more than larger companies

All in all, I believe a lot of downside has been factored in and it’s a good opportunity to make 20-30% easily (especially at entry levels below $15). I have made 30% on Flowtek in the last month and so can you! I currently don’t own shares in Flowtek.

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