Bust: GasFrac Energy Services
If you’re not afraid to take a wild ride with a $120 million microcap stock that boasts a greener alternative to traditional fracking methods, GasFrac Energy Services (GSFVF) could be an interesting play.
Unlike conventional methods, GasFrac’s proprietary technology injects liquefied petroleum gas gel to break up shale deposits instead of water, potentially reducing groundwater contamination and earthquake risks. One notable risk, however, is the need to truck in (and store on site) vast quantities of highly flammable propane.
Scotiabank analysts recently raised their price targets on the stock from $2 to $2.50 — a potential upside of more than 40% over its recent price range. As expected for a microcap stock with a bleeding-edge technology, it will take time for GasFrac to start making money. GSFVF clearly has the potential to pay off big if traditional fracking methods are restricted or banned. But buckle up — it’s going to be a bumpy ride.
By their nature, microcap stocks tend to be riskier than their large-cap peers. Such companies often are focused on new technologies and have fewer tangible assets (in GasFrac’s case, only about $1 million in operating cash flow). They also usually are more thinly traded (GSFVF’s average daily volume is less than 100,000 shares) — so it doesn’t take much for a trade to have a great impact on the stock.
Still, if GasFrac’s waterless fracking technology hits big, the potential reward is huge. With traditional water-based hydraulic fracturing methods under fire by environmentalists and the public increasingly favoring tougher fracking regulations, this company could find itself in the catbird seat if its technology can maintain cost-efficiency and boost safety. Obviously, GSFVF is not a stock to sink your life savings on, but the risk-reward ratio is probably OK if you’ve got a little mad money lying around.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.