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Why Shares of Flotek Industries Inc Plunged 25% Today

By Travis Hoium - Jan 19, 2016 at 1:03PM

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The SEC is looking into Flotek, and that's not a good sign for investors.

What: Shares of Flotek Industries Inc (FTK -0.81%) plunged as much as 25% in morning trading on Wall Street after updating investors on fourth-quarter results. By 12:00 p.m. ET, shares had recovered about half of their losses and were down 13%. 

So what: Management didn't give great detail on fourth-quarter results but said that revenue from CnF, its patented surfectant, would be flat from the third quarter on about a 5% increase in volumes. But the non-CnF chemistry business will be "meaningfully weaker" and the drilling technologies segment will decline about 5% sequentially.  

On top of the bad results, the company said the SEC has started an inquiry into the company's reporting and accuracy of FracMax. When the SEC comes sniffing around, it's never a good sign for a company.

Now what: Flotek was able to squeeze out a narrow profit of $2 million in the third quarter, but a significant decline in revenue could lead to a loss in Q4. What may be more concerning long-term is the SEC looking into FracMax, a product management once thought would be a growth driver. That product is now up in the air, and with the oil industry in the U.S. in a major decline, I don't see a reason to be a buyer of shares on today's drop.  

Travis Hoium 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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