I don't generally consider energy-related firms long-term buy and holds because of the cyclical nature of the industry and its tendency for boom and bust cycles. For companies competing in the oil and natural gas space, the price of the underlying commodity is the key item that can make or break an operating model, especially for those trying to locate the natural resource far beneath the surface.
That's where seismic firms come in handy. These entities help oil and gas clients explore and locate reserves by collecting and analyzing underground images of the earth. In a nutshell, the process involves using sound and sonic waves and recording how they echo off of different underground or undersea surfaces.
There are two primary seismic methods. The first is referred to as 2-D, and only offers a single linear plane of data to interpret. The newer technology is called 3-D, and as you might have guessed, offers three-dimensional views, with enhanced abilities to use more sophisticated techniques and additional clarity and detail in locating proven or probable reserves.
That's about as much detail as my non-engineering mind can muster, but hopefully you get a sense of how useful such technology can be for firms trying to locate vast energy reserves. Seismic collection and interpretation costs vary depending on how deep or complex the earth's formations are, so the price of the underlying commodity definitely influences whether such endeavors are economical.
Lately, the cost of oil and natural gas has been high enough to justify additional exploration efforts, and seismic firms have benefited greatly. It's uncertain how long prices will remain high, but the long-term outlook for the space is still compelling. As we all know, most commodities are limited resources, so there will always be demand for new supply to satisfy ever increasing demand.
So, if a Fool were to invest in the space, what are the options? Good question. Below is a chart detailing the vital trading stats for the major publicly traded seismic firms:
|
Company |
Mkt Cap |
TEV/ EBITDA |
P/E |
P/B |
Debt/ Capital |
|---|---|---|---|---|---|
|
Veritas DGC |
2,860.0 |
6.7 |
37.6 |
3.9 |
18% |
|
Input/Output |
934.7 |
10.8 |
30.6 |
2.5 |
17.2% |
|
Seitel |
555.9 |
4.5 |
16.7 |
22.7 |
88.5% |
|
OYO Geospace |
285.5 |
22.9 |
50.0 |
3.9 |
12.6% |
|
TGC Industries |
124.0 |
6.0 |
14.1 |
3.7 |
21% |
|
Petroleum Geo Services |
4,460.0 |
7.8 |
17.8 |
13.9 |
54.6% |
|
Dawson |
281.6 |
6.9 |
17.3 |
2.3 |
0% |
|
Average |
1,357.4 |
9.4 |
26.3 |
7.6 |
30.3% |
The shares of each company listed above have outperformed the S&P 500 over the past one-, two-, and five-year periods, which is understandable, since most commodity-based industries have had strong runs. But if we were to select our top pick from the seismic field, how could we decide?
I'll leverage Motley Fool resources for a final decision. For starters, Fools already know that OYO Geospace (NASDAQ:OYOG) and Dawson Geophysical (NASDAQ:DWSN) are Motley Fool Hidden Gems picks. Additionally, all of the metrics in the above table for Dawson and TGC Industries (AMEX:TGE) trade below the group average. And out of all of the above firms, Dawson has the most bullish recommendations in our burgeoning CAPS community, with OYO Geospace and TGC Nos. 2 and 3, respectively. So, Dawson it is!
Do you agree that Dawson is a little company with big plans? Feel free to read up on why so many players are bullish on Dawson, and don't hesitate to weigh in with your opinion on the firm, seismic firms, or any company for that matter.
Seen our other contenders for best small cap? If not, click here.
Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.
