Is TransAtlantic Petroleum the Perfect Stock?
Mar 21st 2012 9:57AM
Updated Mar 21st 2012 9:58AM
Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?
One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if TransAtlantic Petroleum (ASE: TAT) fits the bill.
The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:
- Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
- Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
- Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
- Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
- Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
- Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.
With those factors in mind, let's take a closer look at TransAtlantic Petroleum.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||268.7%*||Pass|
|1-Year Revenue Growth > 12%||51.3%||Pass|
|Margins||Gross Margin > 35%||86.1%||Pass|
|Net Margin > 15%||(87.6%)||Fail|
|Balance Sheet||Debt to Equity < 50%||45.2%||Pass|
|Current Ratio > 1.3||1.28||Fail|
|Opportunities||Return on Equity > 15%||(32.1%)||Fail|
|Valuation||Normalized P/E < 20||NM||NM|
|Dividends||Current Yield > 2%||0%||Fail|
|5-Year Dividend Growth > 10%||0%||Fail|
|Total Score||4 out of 9|
Source: S&P Capital IQ. NM = not meaningful due to negative earnings. Total score = number of passes. *Four-year growth rate.
With only four points, TransAtlantic Petroleum has some promise along with some problems. But the company is lacking profitability, and ever-growing losses are making some question its viability.
TransAtlantic is an oil and gas exploration and production company that's headquartered in Turkey. With operations in Turkey, Bulgaria, and Romania, as well as central California and parts of Oklahoma, TransAtlantic lives up to its name with global scope.
Eastern Europe is actually a hotbed of energy activity right now. Chevron (NYS: CVX) is also exploring in Bulgaria, and both it and Marathon Oil (NYS: MRO) have looked to explore in Poland. With a headquarters in the region, TransAtlantic arguably has an inside track. And unlike U.S.-focused producers Chesapeake Energy (NYS: CHK) and Southwestern Energy (NYS: SWN) , which have struggled under the weight of natural-gas supplies domestically, TransAtlantic's proximity to the more favorable pricing environment for gas in European markets should give it better prospects.
Early last year, the stock soared in response to TransAtlantic buying two Turkish oil and gas producers. But since then, the stock's price has come downward, as initial hopes have turned into larger losses. With substantial debt and negative cash flow, the company needs to get a lot more successful soon or else raise capital by diluting current shareholders.
TransAtlantic has potential to improve, but it doesn't have a lot of time. If the E&P company hits it big, then you could see losses turn to profits, and this stock would get a lot closer to perfection quickly.
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.
If you like energy stocks, we've got a stock idea that could knock your socks off. Read about it right here in The Motley Fool's special free report on the energy industry and its best prospects -- it's free but only available for a limited time, so click here today.
Click here to add TransAtlantic Petroleum to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.
At the time this article was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Chevron and Chesapeake Energy. 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 Fool has a disclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.