Forget all the high-minded talk about earnings, return on capital, and future market potential. I think what most shareholders of diversified drilling services company Layne Christensen (NASDAQ:LAYN) want to know right now is, "what the *bleep* is happening to the stock?!" After all, wouldn't you think that reported revenue growth of nearly 64% and reported net income growth of 166% should be cause for happiness -- not a 7% stock drop?
Let me offer some theories. First, this is only a moderately liquid stock (meaning it doesn't always trade a lot of shares per day), so big institutions often have to wait for days -- when there is big news (good or bad) -- to make any buy/sell moves, lest they move the price against themselves. Second, while there is only one published analyst estimate that I'm aware of, the company did miss that number by 20% ($0.20 reported versus $0.25 estimated). Lastly, investors may be unhappy with the margins seen in the core water business.
Today's action aside, I think the situation here is still pretty good. I know that profits in the water business were lower, but I think water and wastewater infrastructure still has some good years ahead of it, given that water companies like American States (NYSE:AWR) and Aqua America (NYSE:WTR) -- to say nothing of dozens of municipalities -- still have infrastructure spending needs.
Elsewhere, the minerals business continues to see strong drilling rig rates for mineral exploration, and that's despite more difficult conditions in Africa, a traditionally important market. Last and not least, the energy business continues to grow nicely. Production more than doubled for the full year and proved reserves were up nearly 70%. This also happens to be a business where I believe the company could grow through asset acquisition -- coalbed methane isn't like other natural gas projects, and while companies like Apache (NYSE:APA) are involved, not all energy players want to bother.
Last and not least, Layne Christensen resolved a spat with one of its large owners -- Steel Partners. The company agreed to shrink its board by one person and also hired an investment bank to "evaluate and refine" the company. I personally think that's money thrown down a rat hole -- investment banks are good at trading and deals, not business consulting -- but if it settles the issue, I suppose shareholders can look at it as the lesser of two problems.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
