August 7, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Kosmos Energy (NYSE: KOS ) opened 18% lower before recovering to just a 6% loss today, one day after the company gained 6% on an earnings beat. A downgrade from RBC Capital appeared to be responsible for the loss today.
So what: Kosmos, which is focused on drilling in underexplored areas in Africa and South America, beat earnings estimates but still reported a $0.07 EPS loss, while revenue came in slightly below Wall Street expectations, down 11% from the previous year to $112.7 million. Part of yesterday's excitement came from reports that fields offshore Ghana were producing greater quantities than expected.
Today, however, Kosmos was downgraded from outperform to sector perform by RBC Capital. The stock has struggled recently, losing about 30% of its value year to date and nearly half since its 52-week high last October.
Now what: Since it went public over a year ago, Kosmos has had only reported one quarter with positive net income. The market seems to be treating this like a growth stock with a P/S over 5, but revenue declined last quarter due to lower oil prices. Sales are predicted to more than double in 2013 as more production comes online, but I'd prefer to take a wait-and-see approach. Kosmos seems like it has some work to do before it gains back investor confidence.
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