Shares of oilfield services company NexTier Oilfield Solutions (NYSE: NEX) have seen shares bounce all over the place today. As of this writing at 11:00 a.m., shares are down 10%. At the open, though, shares were as much as 22% higher from yesterday's close. The company hasn't reported any news, nor has there been any significant news about the oil and gas industry today that has moved the broader industry. So what's going on?
With a market cap of only $404 million and a stock price well under $5, NexTier has fallen into penny stock territory. Stocks like this will move up and down double digits on a regular basis. The closest thing resembling news for NexTier's stock is that it was the second-most-popular stock bought on the app Robinhood yesterday, with total Robinhood users owning the stock increasing 321% from the prior day. Something as small as that can be a major driver for a stock that has fallen this far.
The better question investors should ask is how this stock has fallen so far in the first place.
NexTier is a company that was formed by the merger of Keane Group and C&J Energy Services in October of 2019. As the company's name might suggest, it is in the oilfield services business. That alone should be a sign that the company is set to struggle, since oil producers have been slashing spending budgets to the bone.
What makes the problem even worse is that NexTier's business is almost wholly concentrated in shale drilling and well completions. According to its investor presentation, 89% of its annual revenues came from well completions, well construction, and intervention services. Furthermore, nearly all of its business is in North America. This makes the company incredibly exposed to shale drilling in the U.S., which has suffered a complete collapse in activity over the past few weeks.
There is no way to tell what the company's stock will do from here. Again, it is in penny stock territory, and some minute buying and selling can send it into huge price swings in any given day.
From a business perspective, things aren't looking great for NexTier. The company made an outsized bet that it could profit from scale in the North American oil patch, but that is looking like a bet that could lead to huge losses during this oil downturn. The company might not have a lot of long-term debt on the books, but it does have current liabilities like accrued expenses in excess of cash on hand. Things aren't looking good for this business in the near-term future, and its long-term viability is a concern. That should tell long-term investors all they need to know: Stay away.