Ranger Energy on the pullback. This is why I'm doubling down. Ranger Energy Services, Inc. NYSE:RNGR is on an 11% pullback to the $12 support following spectacular Q2 results , with a surprise in their EPS of 47%.
This is one of my highest conviction plays in 2024 for the reasons that I explain below.
In June, this stock surfaced to my attention due to significant insider buying activity. Essentially, the CEO, Bodden Stuart, and the CFO, Cougle Melissa, bought a total of $150,000 in shares in Ranger Energy. This is a significant value to me, given that the share price declined by 37% since October last year.
My investment style favors contrarian insiders buying activity, after a significant selloff in the share price of their company. However, I consider many other things that I cover below.
In Q1 2024, they had very bad results . Their EPS was down by 140% compared to what the analysts estimated.
Most shareholders, especially with micro-cap companies, barely go into the details behind such a decline. They simply have a look at the EPS and Revenue results, and move on. In my case, I analyze every single detail from their quarterly reports, and earnings call transcripts.
I reached the conclusion that the selloff since October was unjustified.
My first argument is the unprecedentedly bad winter, which directly affected their Q1 results.
As a brief side note to readers new to this company, Ranger Energy provides well completion and production services to E&P companies operating on the largest basins in the US.
The very first thing that E&P companies do during bad weather is pause the work of their subcontractors, which in the case of Ranger Energy means zero revenue.
An additional argument that I have for the selloff was a safety related event that resulted in 75 rig-days with zero revenue. Just let that sink in; 75 days with absolute 0 income, but having to cover the business' operating expenses, like salaries and equipment leases.
During the earnings call, management discussed the decision to pivot towards services that provide a higher margin. I really favor this decision, given that I prefer companies who focus on margins, rather than volumes. Why, you might ask? Well, in the event of a recession, guess which one is going to survive? Exactly, none of them, but I will be making money anyways by shorting the one that focuses on higher volume, low margin services.
Coming back to Ranger Energy, I highly value their decision to focus on pump-down services, rather than production, given the high number of new competitors bidding for production contracts at rates that are simply not profitable.
In regards to their price action, I am very confident in the $8.5 and $9.2 support levels, given the high number of times that the share price bounced there.
Additionally, in their Q2 earnings release, they reported an EPS that was 47% above analysts' estimate. The share price easily broke the $12 resistance level.
Now, with the recent pullback following unfavorable results from the US jobs report, the share price is back on the $12 price mark.
I highly believe the share price will touch the $15 resistance before the end of the year, given the strategic initiative to focus on high-margin services, and the lack of one-off events, like safety incidents or harsh winter conditions.
I am planning to buy more shares and call options expiring on December this year. As a side note, the rocket symbol on the price chart represents my entry point this year.
