EC If Frac Sand Is So Hot—Why Are Sand Stocks So Cold?

The Big Change came when the quarterlies of these Big 4 sand producers were issued. They all talked to sand fundamentals being strong, but their quarterly cash flow didn’t meet expectations.

Missing estimates forced the market to do a reality check, and concerns over surprisingly fast increases in new sand supply added to the concern.

This is what happens when huge growth expectations get factored in and multiples on the stocks in a sector get really big. It doesn’t take much doubt to cause a big share price reaction.

The reality is though that long term growth story for these sector likely hasn’t changed much.

The trend to use MORE sand is STILL continuing, so I’m a bit surprised these stocks have been hit so hard.

These increases in sand are indicative of pretty much every play in North America…and it is paying off in higher IP rates and lower declines.

Going forward, The Big Money in the oil patch isn’t going to be spent in the deepwater, it isn’t going to be spent in the oil sands.

It is going to be going to be spent drilling and fracing onshore horizontal wells.

The future here is still bright.

Figuring out the right price to pay for the growth that is coming is the tricky part.

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Kurt Kallaus 4 years ago Contributor's comment

Very good research & insight. A frustrating area for many investors I'm sure when looking at such strong financial improvement & prospects, yet sharply falling share prices.

It seems that as important as earnings & revenue are, that Oil prices still dominates pricing of these stocks. Would you agree that sand stocks will struggle until Oil returns to mid to upper 50's? In the case of SLCA, it has almost the exact same retracement as Oil prices (USO) of the rally from the 2016 low to 2017 high (almost 60%).

Also I wonder how much favorable comps for the next few quarters may prevent further heartache for investors - as long as Oil doesn't fall further?