Last month, when the Russia/Ukraine situation drove oil prices to well over $100 per barrel, enthusiasm picked up substantially for oil and gas plays. In particular, enthusiasm rose for low-priced stocks like Houston American Energy (NYSEAMERICAN:HUSA). In a matter of days, HUSA stock went from under $2 per share, to as much as $16.61 per share.
However, it didn’t take long for shares to give back most of their recent gains. A big factor in this was a pullback in oil prices. After bolting to as much as $126.42 per barrel, crude oil has since dropped back to below $100 per barrel. It’s not for certain, but the fickle nature of meme traders may have played a role in HUSA’s sharp drop back to around $3.50 per share today.
So, quickly moving higher, then lower, is it time to move on from HUSA stock? Not necessarily. Let’s dive in and see why.
HUSA Stock at a Glance
Much like its corporate name suggests, Houston American Energy is based in Houston, Texas, and is in the energy business. A small, independent oil exploration and production (E&P) company, its operating performance hinges heavily on both crude oil and natural gas prices.
With oil prices moving up so much, so fast, it’s no surprise HUSA stock made the epic moves it made last month. A big jump in oil prices can materially increase its revenue. Given its fixed overhead costs, it could also be something that takes this company, which for years has operated in the red, to the point of profitability.
Conversely, it’s no surprise that oil’s pullback resulted in such an outsized move lower for Houston American shares. With crude oil now only up just 31.3% year-to-date, versus up two-thirds as recently as last month, investors are now expecting a smaller improvement in this company’s results for 2022.
Again though, while the big drivers for shares last month has played out, that doesn’t mean more big drivers have zero chance of emerging. Further developments may be enough to fuel another massive move. These include potential developments outside of its control, as well as those more within its control.
Possible Catalysts for Houston American Shares
Obviously, the main potential catalyst for HUSA stock is another oil price spike. I won’t go too much into the chances of this happening. I will, however, point out that analysts at UBS last month argued that between tight supply (due to sanctions/import bans imposed on Russia) and high demand (even higher due to increased post-pandemic traveling), oil prices could bounce back to $125 per barrel this summer.
Such a development could renew enthusiasm for Houston American, driving it back toward higher prices. That’s not all. News from the company itself could help spark another big surge in price.
Yes, there has been little news out of this company. The only thing we’ve seen lately from it is the release of its annual 10-K filing on March 31. Still, that’s not to say a major development has zero chance of cropping up.
For instance, updates about its exploration and production projects in the Permian Basin, where most of its operations are located, could arise soon. Or, updates on its other projects in the U.S. Gulf Coast, or in Colombia might hit the headlines. With more eyes now on this formerly under-the-radar company, a moderate amount of positive news could cause a big move higher for shares.
Earning a “B” rating in my Portfolio Grader, keep in mind the key caveat with Houston American Energy. Like other small cap oil and gas plays, it comes with an elevated amount of risk. Instead of zooming higher, it could just as easily make a big leap lower.
If oil fails to spike again, shares could make a further return back to past price levels. Also, if there continues to be little news from the company, what remains of the excitement surrounding this stock could dissipate as well. A return down to $2 per share alone would be a 42% decline from today’s prices. A full trip back to its 52-low ($1.07 per share) would mean a near-70% decline.
Even so, if you are looking for an oil play of the high-risk, high potential return variety, HUSA stock may be worth a closer look.
— Louis Navellier and the InvestorPlace Research Staff
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Source: Investor Place