It was another day of modest gains on heavy volume for Goodrich Petroleum (GDP) as the company’s stock is up almost 4 percent on volume approaching 3.5 million shares.
The move appears to be continued momentum building off of a huge upswing in mid-April after the company announced it had completed its Blades 33H-1 well in Tangipahoa Parish, LA under-budget and ahead of schedule.
Small-Cap Goodrich Gaining Sharply in 2014
Small-Cap Star Goodrich Petroleum stumbled out of the gate in 2014, issuing a Q4 2013 earnings report that disappointed the markets and sent the stock tumbling almost a third of its value in a single week. However, after that initial setback, Goodrich has been tearing up the charts.
Since that low point on February 20, the stock is up over 135 percent, making for a YTD gain of over 70 percent. For anyone keeping track, Goodrich’s stock, currently sitting at just over $29 a share, was a mere $16.21 a share at the start of the year when Equities.com’s Small-Cap Stars system identified it as among those small-cap plays with the greatest potential for success.
Strong Properties, Fundamentals Driving Gains for this Small-Cap Materials Stock
Goodrich Petroleum’s rise is likely tied largely to its expanded efforts to explore the promising Tuscaloosa Marine Shale (TMS) in Louisiana and Mississsippi. The company purchased over 80,000 net acres of land in the area in 2011, and it announced earlier this month that it was beginning to drill one new well in Louisiana planning to start two more in Mississippi. All told, Goodrich is planning on spending $325 million to $375 million on infrastructure just this year.
And a look into the company’s fundamentals, like the one Equities.com Research Analyst Nicholas Bhandari applies to each and every small-cap company out there before compiling the small-cap stars, demonstrates why Goodrich has a strong potential to keep building on these current gains. The Small-Cap Stars examines hundreds of fundamental factors and then compares current companies to those of similar size in the same industry immediately prior to those companies showing major returns.
Of the 133 base materials companies that made the Small-Cap Stars, Goodrich Petroleum ranked 11th.
“It hit on pretty much everything,” said Bhandari.
He noted that among the traits the appeared strongest for Goodrich, the company’s unleveraged beta and firm value were notable. What’s more, SG&A expenses were high, an indication that the company was investing heavily in its future.
Shorts Abound, but Goodrich Stock Could be Nearing a Squeeze
As one would expect, Goodrich’s recent spike that saw the company more-than double in value in just over three months has pushed several of the stock’s technical factors into overbought territory. Something that the shorts have noticed.
Goodrich has been at or above a 14-day RSI of 60 almost constantly since the start of April. That level pushed over 70.0, the traditional barrier indicating a stock is overbought, during the mid-April spike and stayed there for three weeks. Despite retreating past 70.0 near the end of April, the stock has stayed at high levels for its 14-day RSI and pushed past 70.0 again at the start of this week and remains there.
There’s also fact that the stock also pushed across its upper Bollinger Band for several days during that April spike and did it again last Friday, remaining above that technical indicator for a fourth-straight day today.
Taken together, this has to be welcome news to the ailing short-sellers hoping for Goodrich stock to plummet. Goodrich currently has a short float over 40 percent, meaning there’s plenty of folks out there fixated on its lack of profits rather than the promise of its Louisiana and Mississippi properties.
However, this could just as easily mean good things for Goodrich investors. Firstly, while certain technical factors would seem to predict an imminent pullback, others would seem to indicate that Goodrich could just be getting started. The 50-day SMA crossed the 200-day SMA from below early last week, a very bullish indicator; and the MACD line crossed the signal line from below at the start of this week, another buy signal.
What’s more, Goodrich is notably feeling the love from analysts. Despite the 40 percent of shares owned by short interests, nine of the 14 analysts covering the stock currently have it rated a strong buy, compared to just one rating it a strong sell. This includes a price target of $35 or more from Stifel, MLV & Co., and Howard Weil.
Stocks routinely trade in oversold territory for lengthy periods of time provided the right catalyst is driving the action. So it’s not hard to see a scenario where Goodrich can continue to gain ground, or even shake-off a small momentum-driven sell off before consolidating and continuing its climb. And, if good news continues to come in about the wells being drilled in the TMS, Goodrich could continue to defy its technical data.
What’s more, the heavy short float could also be setting up a future short squeeze. In the event that the right piece of news sparks another spike for the stock, the short interests could very well see the writing on the wall and flood out of the stock. In that case, the already surging Goodrich could be in for another major jump.