Why Shares of Forest Oil Corporation Collapsed Today

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 energy company Forest Oil Corporation (NASDAQOTH: FSTO  ) plunged a whopping 36% today after the company reported earnings.

So what: Fourth quarter revenue of $88.5 million fell short of the $96.3 million Wall Street was expecting and earnings of $0.02 was a penny below estimates. But what's more alarming was a decrease in proved reserves from 1,363 Bcfe a year ago to 625 Bcfe to end 2013.  

Now what: Part of the decline in reserves can be accounted for by 800 Bcfe in asset divestitures. The decline in reserves was clearly sharper than investors expected and when combined with weak revenue and earnings the stock was crushed today. Wall Street is still expecting a big pickup in profit near the end of 2014, but until we see that happen I'd take a very cautious look at the stock.

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