Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of independent oil and gas company Memorial Resource Development Corp (NASDAQ:MRD) fell as much as 22% today after reporting earnings.
So what: Fourth-quarter revenue reached $103.8 million, which was up 73% from a year ago but didn't meet the $123.7 million figure Wall Street expected. Net income was $0.86 per share, but that was driven by gains on hedging, and adjusted for one-time items earnings were just a penny per share, well below the $0.13 estimate.
Now what: Memorial Resource Development has done a good job hedging production and focusing on natural gas, but there's still not much profit left on an ongoing basis. Until either natural gas or oil prices improves meaningfully, the company will struggle to make a profit. In the meantime, management is still planning to spend $500 million on expanding production in 2015, which is a risky bet considering the current pricing environment. Given the weak profit levels, I don't see a reason to jump into shares today.