ION Geophysical Corporation (IO) in Houston, Tex., provides robust data-driven decision-making to the offshore energy and marine operations sectors, allowing clients to improve investments and outcomes by gaining access to its data, tools, and unique analytics. The company’s shares have surged 111.6% in price over the past month owing to a spike in global oil prices.

However, the stock has slipped 67.2% over the past year and 32.3% over the past three months to close the last trading session at $1.05. It is currently trading below its 52-week high of $3.25, which it hit on March 15, 2021.

In addition, S&P Global Ratings downgraded the stock to D from CCC in January, with a negative outlook, after the company failed to make approximately $12 million in interest and principal payments due on Dec. 15, 2021. IO’s 8% senior secured second priority notes due 2025 were similarly lowered to D from CCC.

Here is what could shape IO’s performance in the near term:

Postponements of Loan Repayments

This month, IO entered a first amendment to the second forbearance and a seventh amendment to the credit agreement with the purchase lenders, under which the purchasing lenders agreed to extend the present forbearance through April 4, 2022. In addition, IO said that it has entered into amendment No. 2 to the forbearance agreement with holders of more than 79% of its 2025 notes to extend their forbearance until April 4, 2022. These moves reflect the company’s poor financial health.

Poor Profitability

IO’s 32.4% trailing-12-months gross profit margin is 23.7% lower than the 42.5% industry average. Also, its ROA, net income margin, and ROC are negative 23.2%, 42.1%, and 6.6%, respectively. And its trailing-12-month cash from operations stood at a negative $13.97 million compared to its $305.57 million industry average.

Discounted Valuations

In terms of forward EV/Sales, the stock is currently trading at 1.61x, which is 31.9% lower than the 2.37x industry average. And IO’s 0.27x forward Price/Sales  is 82% lower than the 1.52x industry average.

POWR Ratings Reflect Uncertainty

IO has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. IO has an F grade for Stability and a C for Quality. The stock’s 3.20 beta is in sync with the Stability grade. In addition, the company’s weak profitability is consistent with the Quality grade.

Among the 87 stocks in the B-rated Energy – Oil & Gas industry IO is ranked #72.

Beyond what I have stated above, you can view IO ratings for Growth, Momentum, Value, and Sentiment here.

Bottom Line

While the company’s shares have surged nearly 111% in price over the past month due to a global surge in crude-oil prices, there is little or no company-specific news driving the price rally. Furthermore, the company is currently in discussions about postponing its debt repayment, which is an indication of IO’s financial instability. Therefore, we think investors should wait before scooping up its shares.

How Does ION Geophysical Corporation (IO) Stack Up Against its Peers?

While IO has an overall C rating, one might want to consider its industry peers, California Resources Corporation (CRC), Baytex Energy Corp. (BTEGF), and VAALCO Energy Inc. (EGY), which have an overall B (Buy) rating.

IO shares were unchanged in premarket trading Monday. Year-to-date, IO has gained 5.68%, versus a -11.32% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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