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Why Approach Resources Inc.'s Shares Dropped

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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 Approach Resources (NASDAQ: AREX  ) dropped 10% today after the company released earnings.

So what: Sales rose 33.8% from a year ago, to $44.2 million, and the company swung to a profit of $495,000, or $0.01 per share. After adjusting for one-time items, the company made a profit of $0.07 per share, in line with estimates. 

Management did lower 2013 production estimates from 3.6 MMBoe, to 3.4 MMBoe, due to downtime at a third-party NGL fractionation facility. This is where the real disappointment came today.

Now what: Management still expects to grow production 40% next year by drilling 70 more horizontal wells. I'm also encouraged by a 20% decline in the cost of each well. This wasn't a great quarter, but the plant shutdown is a one-time event, so I don't think it's a reason to panic. Investors are getting a nice discount today, and if operational improvement continues, next year, the stock has room to run higher.

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Travis Hoium
TMFFlushDraw

Travis Hoium has been writing for fool.com since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

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Related Tickers

7/2/2015 4:00 PM
AREX $6.09 Down -0.09 -1.46%
Approach Resources CAPS Rating: **

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