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Why FMSA Holdings Inc Stock Shot Up Almost 17% Today

By Jason Hall - May 12, 2015 at 3:02PM

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An earnings beat can do good things for a beat-down stock.

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: Frac sand producer FMSA Holdings Inc (NYSE: FMSA) stock spent the morning moving up quickly, almost hitting a 17% gain before cooling off a bit. As of this writing, the stock is still up about 14%. 

So what: Fairmount Santrol released earnings before the market opened on May 12, beating analyst expectations with earnings per share of $0.19, though coming up short of revenue projections. There's a good chance that some of the sharp price movement is a bit of a short squeeze, considering that shares held short had sharply increased since the beginning of the year:

FMSA Chart

FMSA data by YCharts

Now what: There could be some value in Fairmount Santrol's stock at this price, which is still down about 44% from its IPO price last October, but investors need to consider that there is still significant uncertainty ahead. The company's business is based on providing sand that oil and gas drillers use in hydraulic fracturing, and domestic drilling activity has fallen off a cliff this year. 

With that said, Fairmount Santrol has managed to stay profitable at current levels, and the U.S. oil and gas boom is going to remain reliant on the products that companies like Fairmount Santrol provide, as new drilling activity will be necessary just to maintain current production levels. The thing is, it's just not clear how long the current drilling activity slowdown will last, and what it will do to the bottom line and stock prices for companies that support drilling activities. 

That means the volatility we've seen since its IPO is likely to remain a reality, and this stock is likely to be subject to big swings up as well as down on macroeconomic and oil price/supply news, in addition to material financial releases like earnings. Invest with that in mind.

Jason Hall has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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