Why NOW Stock Plunged Nearly 18% in July

Investors were worried about the oil-field equipment distributor last month.

Matthew DiLallo
Matthew DiLallo
Aug 6, 2019 at 10:05AM
Energy, Materials, and Utilities

What happened

Shares of NOW (NYSE:DNOW) slumped 17.7% in July, according to data provided by S&P Global Market Intelligence. Lower oil prices weighed on the oil-field equipment distribution company's stock last month. That volatility caused investors to fear that the company would post poor second-quarter results.

So what

Crude prices continued their sell-off last month, falling another 2.1%. Those weaker prices led investors to worry that oil companies would reduce their drilling budgets later this year. That would likely impact the demand for the oil-field equipment distributed by companies like NOW, which would drag down the company's profitability.

A close-up of drill pipes with oil workers and a rig in the background.

Image source: Getty Images.

While lower oil prices are impacting NOW's results, crude's slump isn't hurting the company's business as much as investors feared. That was evident in the company's second-quarter results, which it announced in early August.

On the one hand, the company's results were weak, as revenue and earnings slipped versus the year-ago period. However, the company still managed to beat analysts' muted revenue expectations, and its earnings matched the consensus estimate. Meanwhile, NOW reaffirmed its full-year outlook that its revenue would be flat to slightly below 2018's level.


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Now what

The continued volatility in the oil market led many investors to fear that drillers would alter their 2019 spending plans, which would likely impact demand for the equipment NOW distributes. While the company doesn't believe that will be the case, further weakness in crude prices could cause drillers to cut spending. If that happens, shares of NOW could fall even further.