Shares of Nordic American Tanker (NAT 4.90%) closed 11.2% higher on Monday after the company posted fourth-quarter 2017 earnings. Actually, scratch that. What Nordic American Tanker reported was a Q4 loss.
On the face of it, Nordic American's news was not good at all. The company lost $0.14 per share in Q4, on sales of $3 billion. However, this was just 29% of the $0.48-per-share loss it reported in Q4 2016, and revenue came in 27% higher.
The big fourth-quarter result helped to slash Nordic's losses for the year 2017 to "only" $0.53 per share. That still sounds bad, but it was only about one-third as bad as the $1.53-per-share loss incurred in 2016, despite sales falling 1% year over year.
Best of all were Nordic American Tanker's comments on the year to come. Building on support from the evident revival of revenue in Q4, as well as improved cash flow, management said it expects "the tanker market to turn for the better in 2018."
"Despite the volatility in the stock markets," said Nordic, "the world economy is enjoying its strongest upswing since 2010. What is good for the world economy and world trade is positive for the crude oil tanker business."
Going forward, observed the company, if tanker dayrates return to their historic average levels over the past 25 years (i.e., about $30,000 a day), that would generate enough cash to give Nordic American $1.40 per share in annual free cash flow. With Nordic American stock currently trading for just over $2 a share, that implies a very low price-to-free cash flow multiple if and when Nordic's predictions pan out -- and explains why investors were so happy despite today's loss.