Shares of offshore and undersea services provider Oceaneering International (OII -0.31%) were down 13.2% at 1:52 p.m. EDT on Friday. This continues what has been an awful week, with Oceaneering's stock losing two-thirds of its value during one of the worst-ever weeks for crude oil prices.
Today's sell-off is frustrating for many investors. Crude oil prices are actually up today, with Brent gaining 2.7% at this writing and West Texas up a more modest 1.1%. Stocks are also rebounding from Thursday's horror show that saw them fall by the largest percentage in more than 32 years.
Moreover, many other energy stocks are also climbing today, as investors start looking for opportunities to buy.
Oceaneering International investors are having to suffer through another double-digit sell-off while many other energy stocks (and the broader market) are moving higher, following word that one analyst, Citi's Scott Gruber, had lowered his price target for the stock to $4. The sad irony behind today's drop, likely tied to Gruber's price target change, is that Oceaneering shares were already well below the $4 target before the change.
But let's not get too caught up in sell-side analyst targets and ratings, because the data is pretty clear that on average, they're not any more accurate than just flipping a coin. A better approach is to consider Oceaneering's business and prospects to determine what actions to take.
The good news is, from a balance sheet perspective, the company is in decent shape. It does have $800 million in long-term debt, but none of it matures in 2020, and the company started the year with over $380 million in cash. Even better, it has a long track record of positive operating cash flows and positive free cash flows, even during early 2016, when oil prices fell even lower than current prices.
Whether the company can continue to generate positive cash flows in the current environment remains to be seen, but management has proved it has the skill to navigate ugly oil markets in the past. While the market is selling in fear, I think we are likely to look back in a few years and see the current environment as having been one of the best to have bought shares of Oceaneering.
That's not to say it's a low-risk investment. It's certainly not because we just don't know what the appetite for its services will be over the next few quarters as oil producers circle the wagons and slash spending. We don't know how protracted the price war between OPEC and Russia will be. And deep inside that uncertainty is the risk that Oceaneering will struggle, lose money, and potentially see its stock price fall even more from here as oil demand and a flooded market further depress investor sentiment. Keep that in mind before you make any decisions.