Enservco Corporation

Enservco Corporation (NYSE: ENSV) is a player in the oil and gas industry. The company works in the conventional and unconventional oil and gas fields throughout the United States, providing well enhancement and fluid logistics and management services to exploration and production companies operating in the US onshore oil and gas industry.

Key Updates:

• Depressing margins: In Q3FY21, the company reported a negative gross margin and negative EBITDA margin of 21.5% and 51.5%, respectively, compared to the industry median of 25.1% and 13.9%. This indicates poor operational efficiency and weak cost management. The company also reported a negative operating margin of 94.5% in Q3FY21 compared to the industry median of 0.4%.
• Highly leveraged balance sheet: At the end of Q3FY21, the company posted its debt to equity of 1.65x, significantly higher than the industry median of 0.39x. This indicates poor capital management and lower financial flexibility. Moreover, the company is prone to higher balance sheet risk as it reported its long-term debt to total capital of 53.6% compared to the industry median of 18.9%.
• Posted net loss: In 9MFY21, the company reported a net loss of USD 3.95 million compared to a net profit of USD 1.2 million in 9MFY20. Continuation of the above trend is likely to dampen the company’s upcoming performance, which remains a significant concern.

Stock Recommendation:

Despite posting a higher top-line, the company failed to retain the momentum and posted a net loss, which has adversely impacted the company’s cash flows. Additionally, the stock of ENSV is available at a higher valuation of EV to EBITDA multiples of 9.8x on an NTM basis, as compared to the industry (Energy) mean of 5.2x. Hence, considering the aforesaid facts, we give an ‘Avoid’ stance on the stock of ENSV at the closing price of USD 4.32, up 43.05%, as of March 10, 2022.

Three-Year Technical Price Chart (as of March 10, 2022). Source: REFINITIV, Analysis by Kalkine Group.