Shares of fracking sand company Smart Sand Inc (SND 7.77%) jumped as much as 15.8% in trading Friday after getting an analyst upgrade shortly after reporting fourth-quarter results. At 2:55 p.m. EDT, shares had settled down slightly to a 9.1% gain on the day.
Johnson Rice was the one who upgraded the stock Friday morning, moving its rating to a buy and upping the price target by a dollar, to $21 per share. This was a day after Smart Sand reported that quarterly revenue jumped 94% versus a year ago to $29.5 million, and the company swung from a small loss to a profit of $12.4 million, or $0.40 per share. Results were in line with analyst expectations, but as this was the company's first quarter as a public company, investors didn't really know where to set expectations.
Management said that demand for the finer mesh grade sands that the company specializes in were in strong demand last quarter and in early 2017. And they said the increased demand in the market would result in "expected growth" in 2017 and going forward.
If $0.40 per share in earnings is a level investors can expect to continue each quarter, then this may be a great stock for investors. But analysts are still only expecting $0.44 per share in earnings next year, leaving the stock trading at 36 times forward earnings estimates.
The fracking business overall, and sand in particular, can be very up and down, and when margins are high, competitors pile into the market with competitive products. That's what investors should be wary of given the solid quarter for Smart Sand. The high profits and margins may not last.