The potash industry has been hit hard this year, and though some believe the industry has hit bottom, there are still reasons to be cautious of Intrepid Potash (NYSE:IPI) moving forward. Slowed industry growth and Intrepid Potash's financial performance relative to its competitors both give cause for continued concern.
The potash industry has been dealing with the issue of oversupply, which has lingered far longer than most would have originally projected. What was a wonderful price increase in potash a few years ago has created a long-lasting increase in the supply of the commodity that still hasn't been consumed by demand in spite of the inevitable price decline. Eventually the demand will eat into the oversupply and prices will again increase, but the timeline for this is already being stretched beyond expectations. Actions being taken by Potash Corp (NYSE:POT) suggest that a true reprieve may still be a long time coming.
Keeping up with the rest of the industry
Potash Corp has made operational changes to help compensate for the declining growth in potash. Mosaic (NYSE:MOS) showed very poor third quarter results, but they are also making operational changes through the acquisition of CF Industries' (NYSE:CF) phosphate holdings in an attempt to maximize production efficiencies and indirectly decrease the impact of the potash component of their fertilizer portfolio. Unfortunately for Mosaic, projections indicate that phosphates are also on a long road to recovery that matches up pretty evenly with the future of potash.
In any case, the major players in potash are taking action to remedy the slowed growth that complacency will not fix. Intrepid Potash has not taken a noticeable action, and is already falling behind the dominant leaders in the industry. When compared with Potash Corp and Mosaic, Intrepid Potash simply does not have the financial indicators that would make it a buy in the world of potash. Intrepid Potash has a current P/E of 27.64 versus the more impressive ratios of 14.60 and 11.02 seen by Potash Corp and Mosaic, respectively. Furthermore, Intrepid Potash is the only of these companies that does not provide investors with a dividend.
While the basic financial indicators point to Intrepid Potash as a growth stock, their lackluster performance in recent quarters along with the nature of the fertilizer commodity market point to a company that is struggling to perform in a competitive industry. When these difficulties are combined with a sizable debt load that limits their options for non-organic growth, it becomes clear that the upside for Intrepid Potash is in serious peril.
Now is a difficult time for the fertilizer industry as a whole, and Intrepid Potash is not a strong play in the sector. An increase in potash prices is still not being realized, and given its less-than-inspiring quarterly results and financial indicators, Intrepid Potash is going to have a longer road to recovery than competitors like Potash Corp and Mosaic.
Fool contributor Shamus Funk has no position in any stocks mentioned. The Motley Fool owns shares of CF Industries Holdings and PotashCorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.