Shares of oil services giant Weatherford International (NYSE:WFT) are down 30.2% as of 2 p.m. EST today. While there has been no particular news pertaining specifically to the company, today is just another day for a stock that has repeatedly posted price swings of 20% or more over the past few weeks. The company's stock has declined more than 90% this past year alone and is now in penny stock territory.
It's strange that one of the 10 largest oil equipment and services companies in the world with $5.8 billion in annual revenue has become penny stock fodder. The issue that has landed Weatherford in this place has been years of mismanagement. For much of this decade, the company has gone through numerous iterations of corporate restructurings and "right-sizing" the business. The company has suffered for years because of a lack of cost control, incredibly high levels of working capital, and the inability to generate cash flow. It has had to supplement those cash gaps with a steady drip of debt that has simply become unmanageable.
Weatherford's current CEO Mark McCollum has tried to fix Weatherford's cash and debt issues by selling off assets, cutting costs, and getting the company ready for an uptick in capital spending outside of North America. The slow recovery of international drilling activity, though, likely has Wall Street worried that it won't be able to service its debt before it can get enough new business. As a result, its stock is now a penny stock, and its corporate debt trades for half of its par value. When a company's bonds trade for a significant discount to their par value, it is a sign that some investors think the company could default on that particular bond.
Weatherford's stock price is so low that it received a notice from the New York Stock Exchange that its shares are no longer in compliance with its listing standards (a stock can't trade below $1 for 30 consecutive days). So chances are company management will have to do something. That could be as simple as a reverse split to reduce its share count.
Whatever it is, though, the overarching theme for long-term investors is to stay away. This company looks to be teetering on the brink of solvency, and it will take an incredible uptick in its business for it to keep the lights on.
Check out the latest Weatherford International earnings call transcript.