RE: RE: RE: RE: totally leveraged to price of oilThe company understands the dangers. They barely escaped bankruptcy and understand the need to create a safety cushion.
The $15million debt financing was crucial and shows management's interests are aligned with shareholders. Did you forget about the 31 million shares that would have been issued if the debt financing wasn't done? They hold a good share of the common stock and don't want big dilution to their interests (and ours).
Debt financing is way less dilutive. Yes, it still represents a risk and requires debt service ability. That is why Leader is not rushing out and ordering new equipment in the midst of a huge spike up in business. They are aware of the risks and are proceeding with their best efforts to reduce risk(debt) before adding to equipment. They also realize that good crews are just as important as fancy new equipment. They tried to keep their crews intact during the bad times and don't want to add staff that might have to be laid off if the boom fades.
We'll see how this all ends up. I think the energy boom has a long ways to go. The developing countries are going to dramatically increase their energy consumption as time goes on. The developed countries will curb their worst energy habits and increase efficiency but I doubt it overcomes the gross consumption of 3 billion people in China and India alone. There are billions more across Asia, Africa, South America and elsewhere that are on the same trend.
Leader needs a few more good qtrs and they will have a better balance sheet and lower risk. This is a high risk/high reward situation. Otherwise investors are better off buying the bigger frack companies like Canyon, which I think is the cream of the crop for risk/reward. Ironic that you mention drilling companies. Talk about boom and bust. They have much higher capex requirements and have to keep investing a much higher percentage of their gross into new equipment. They always get caught building equipment at the top of the boom. Bankruptcies follow.
Oil Services is a high risk, boom and bust sector. But this sector is hot and I want the higher reward that a microcap stock gives me rather than just buying CFW or Halliburton in the US. So far Canyon has been a big winner and I'm hoping Leader can steadily follow the same path at a lower level of sales. Profit margins look good so far. I have posted before that gross revs and margins are key. Watch those metrics for signs that the boom is topping and price is becoming an issue.
Oil prices obviously hold the key. As long as we are at $90-100 oil, there will be lots of holes drilled in the ground. Leader should get their share of the completion work and we will all have a nice, fat profit. There will be plenty of winners in oil services. Leader is not the only way to win but I think they will do fine over the next couple of years.