3 Reasons to Sell Intrepid Potash

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.

Single-digit growth
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.

The takeaway
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.

The Motley Fool's Top Stock for the New Year
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

 


Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 31, 2013, at 10:30 AM, 1peezy wrote:

    Hmmmmmm, am I missing something or does the headline say "3 reasons to sell...." and then lists only two reasons (very unsupported reasons might I add). Oh well, good luck with that, shorty.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2778437, ~/Articles/ArticleHandler.aspx, 12/21/2014 11:31:20 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 17,804.80 26.65 0.15%
S&P 500 2,070.65 9.42 0.46%
NASD 4,765.38 16.98 0.36%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/19/2014 4:06 PM
CF $265.95 Up +6.59 +2.54%
CF Industries Hold… CAPS Rating: ****
IPI $14.03 Up +0.61 +4.55%
Intrepid Potash CAPS Rating: **
MOS $46.01 Up +0.80 +1.77%
The Mosaic Company CAPS Rating: ****
POT $35.77 Up +0.50 +1.42%
PotashCorp CAPS Rating: ****

Advertisement