What happened

Shares of fertilizer producer Intrepid Potash (NYSE:IPI) sank over 14% today after an analyst downgrade. The stock had been trading near two-year highs after the company released second-quarter 2017 financial results last week. Overall, the results showed signs that management's new strategy may just be working.

Focusing on lower production costs, however, wasn't enough to impress UBS analyst John Roberts, who slashed his rating of Intrepid Potash stock from neutral to sell. As of 2:30 p.m. EDT, the stock had settled to a 12.1% loss.

A businessman looking far into the distance to follow a stock chart showing big losses.

Image source: Getty Images.

So what

Roberts cited that, although the risk of bankruptcy had been "significantly reduced," the current market cap is a little too frothy. He may have a fair point. While management has reduced total debt 54% since the end of September 2016, the gap between the stock price and price-to-sales ratio has widened in the last several months.

IPI Chart

IPI data by YCharts.

The analyst also noted that potash prices remain pressured, which could limit the long-term growth and sustainability of Intrepid Potash's stock price. Once again, he may have a fair point.

Selling prices for the company's Trio-branded products dropped 37% in the first half of 2017 compared to the year-ago period. That didn't allow the company to capture any benefits from increased production. And although the net loss was cut in half between the same comparison periods, there's a long way to go to make up the $19.6 million needed just to break even.

Now what

Management is doing what it can to increase operating efficiency, but it cannot control selling prices. That doesn't mean the stock is worth your time, however. Intrepid Potash stock could continue to struggle without a major pricing improvement in potash fertilizers. Unfortunately, a recovery doesn't appear to be in sight, which means the UBS analyst's warning should not be dismissed.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.