Why ION Geophysical Corp. Shares Skyrocketed

Is ION Geophysical's jump meaningful or just another movement?

Feb 13, 2014 at 4:04PM

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 ION Geophysical (NYSE:IO) popped 24% Thursday after the company reported better than expected fourth-quarter results.

So what: Quarterly revenue rose 26% year over year to $218.7 million, which translated to adjusted earnings of $0.33 per diluted share. Analysts, on average, expected earnings of just $0.06 per share on significantly lower sales of $126.52 million.

Now what: This was a massive beat, but keep in mind that CEO Greg Heinlein admitted this may not always be typical: "We had a strong finish in 2013, with every part of our business contributing. Our data library continues to focus on the right places of the world where exploration spending is occurring. While not always consistent, we believe this quarter demonstrates that we remain well positioned for future licensing rounds."

As a result, Heinlein declined to provide specific forward guidance for the company, instead choosing to say, "Our outlook for 2014 remains cautious until we see clarity in E&P spending between exploration and production."

In the end, I'll admit a beat of this magnitude makes it hard to take analysts' expectations seriously, but the stock does look relatively cheap at roughly 15.7 times next year's estimated earnings and with a rock-bottom price to earnings growth ratio of 0.60. At the very least, then, I think investors would do well to add ION Geophysical to their watchlists as a potential portfolio addition down the road.

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