Nine Energy Service, Inc. (NINE) in Houston, Tex., is an onshore completion services provider that focuses on unconventional oil and gas resource development in North American basins and worldwide. It owns and operates 47 wireline pump-down units and 14 coiled tubing units. Over the past month, the stock has gained 189.4% in price as investors have traded extensively in penny stocks in the oil industry alongside surging crude oil prices.

However, NINE has a history of long-term share price weakness. Its stock has dipped 85.2% over the past three years. Furthermore, its revenue and total assets have declined at 25% and 30.6% CAGRs, respectively, over the past three years.

The company was also recently involved in litigation regarding its BreakThru Casing Flotation Device and its alleged infringement of a patent held by NCS Multistage Holdings, Inc.

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

Patent Dispute

On Jan.21, 2022, NINE reported that a jury in the Western District of Texas, Waco Division, issued a judgment in a patent case involving the company’s BreakThru Casing Flotation Device and  charges that it violated of a patent owned by NCS Multistage Holdings, Inc. (NCS). The jury determined that NINE violated NCS’ patent and awarded NCS damages of less than $500,000.

Inadequate Financials

NINE’s total revenue increased 13.2% year-over-year to $105.09 million for the three months ended Dec. 31, 2021. However, its operating loss came in at $8.14 million. The company’s net loss was  $15.75 million, while its loss per share amounted to $0.52. In addition, its cash and cash equivalents declined 68.8% for the year ended Dec. 31, 2021, to $21.51 million.

Poor Profitability

NINE’s 11.9% trailing-12-months gross profit margin is 72.1% lower than the 42.5% industry average. Also, its ROA, ROC, and net income margin are negative 16.9%, 8.3%, and 18.5%, respectively. Furthermore, its trailing-12-month cash from operations stood negative at $40.42 million compared to its $305.57 million industry average.

POWR Ratings Reflect Uncertainty

NINE has an overall D rating, which equates to Sell 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. NINE has an F grade for Stability and a D for Quality. The stock’s 3.08  beta is consistent with the Stability grade. In addition,  NINE’s poor profitability and weak financials are in sync with the Quality grade.

Among the 41 stocks in the C-rated Energy – Services industry, NINE is ranked #36.

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

Bottom Line

While NINE’s shares have surged substantially in price over the past month, the company’s poor fundamental strength could negatively affect shareholders’ interest over the long term. In addition, analysts expect its EPS to decline at the rate of 54.2% over the next five years. Therefore, we believe the stock is best avoided now.

How Does Nine Energy Service Inc. (NINE) Stack Up Against its Peers?

While NINE has an overall D rating, one might want to consider its industry peers, Rex American Resources Corp. (REX) and North American Construction Group Ltd. (NOA), which have an overall A (Strong Buy) rating.

NINE shares fell $3.27 (-100.00%) in premarket trading Wednesday. Year-to-date, NINE has gained 214.00%, versus a -9.28% 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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