Enservco Corp (NYSEAMERICAN: ENSV) shares have rocketed up by almost 50% in early trading on Thursday amid excitement that it can capitalise on high demand for US oil. In the last month, the company’s shares have shot up by a staggering 651.67%.
But is ENSV stock a good investment?
What is Enservco?
Enservco Corporation was incorporated in 1980 and is headquartered in Longmont, Colorado. The company uses several subsidiaries to provide well enhancement and fluid management services to the onshore oil and natural gas industry in the United States.
The company owns and operates a fleet of approximately 338 specialized trucks, trailers, frac tanks, and other well-site related equipment. It operates in the eastern United States region, the Rocky Mountain region and the Central United States region.
Why is Enservco’s share price up?
The main drivers behind the company’s recent share price explosion is the rise in oil prices.
Prices have been pushed higher initially by increased demand from people returning to normal routines after the pandemic, but also because of the impact on supply from the conflict between Russia and Ukraine and the huge demand for US-produced oil.
This comes after the Biden administration announced a ban on Russian oil earlier in the week. This is fantastic news for a company like Enservco, which is fully based and operated in the United States.
With domestic drillers set to roar into action to meet this sky-high demand for American oil, which has left some investors positive that the business could be poised for a busy and successful period.
Enservco Financial Overview
P/BV: 5.3
P/S: 2.53
P/E (TTM): 3.28
Market Cap: $48.25m
Cash and Cash Equivalents: $1.67m
Total Current Liabilities: $4.49m
Total Liabilities: $19.04m
Enservco’s Q3 Earnings
In its most recent earnings report back in November, ENSV reported 73% growth in revenue as it benefited from higher commodity prices and steady recovery from the impact of the pandemic.
The company’s executive chairman, Rich Murphy, commented:
“Rig counts and wells drilled in the third quarter increased by double digits on both a year-over-year and sequential quarter basis, and these favorable tailwinds should help position us to sustain our revenue momentum during our fourth and first quarter heating season.”
With increased demand for US oil, the business is well-placed to continue this positive momentum through the fourth quarter and beyond.
Tied to Demand
The value of the company as an investment is intrinsically linked to oil demand and perceived future demand. If anything happens to compromise this demand, such as a sudden dropping of the ban on Russian oil in the US, then Enservco immediately looks less attractive.
Right now, such a situation seems unlikely as all sides and observers in the Ukraine conflict appear resolute.
However, Russian President Vladimir Putin is already admitting that Western sanctions are causing problems in the country and diplomats from Ukraine and Russia are continuing to meet in cagey diplomatic talks. Even so, it is difficult to see an eventuality where sanctions are lifted from Russia in the immediate future.
Russia is not the only source of oil though. The intergovernmental organization OPEC, which is comprised of 13 oil-rich nations across the Middle East, Africa and South America, have a huge influence on oil prices.
While some members have made noises about plugging the gap left by bans on Russian oil, the organisation appears likely to keep supply tight in the near future so they can capitalise on high prices.
Is Enservco a Good Investment?
If its positive momentum continued in its fourth quarter results (due 22 March) then the company could be excellently positioned. However, if Russian oil imports are suddenly back on the table of if OPEC unleashes their enormous supplies then we could see Enservco’s share price falling back.
As things stand, there’s no question that the company is in a strong position, but that doesn’t mean snapping up shares is a great idea. Enservco’s share price has already jumped by an enormous amount over the last month, so even if it does perform well amid the Russian oil ban its success might be more than priced in.
As such, US oil producers and services firms, like US Well Services (NASDAQ: USWS), have been extremely volatile in reaction to the crisis. As such, an investment now while the excitement is in full swing might be dangerous.