It takes an awful lot of muscle and technological know-how to frack and drill unconventional wells. So the oil service industry is poised to continue churning out hefty profits in years to come. That fact has benefited mid-cap maker of drill-bits, pipes and other rig equipment Dril-Quip (DRQ).
Being a potential buy-out candidate hasn’t hurt either.
Some analysts have proposed that DRQ could be one of the next targets for industrial titan GE (GE) as it expands into the oil and gas space by buying up smaller energy stocks. That speculation, along with stronger revenues and earnings, have propelled DRQ stock upwards — to the tune of 48% year to date.
That’s a big gain for such a small firm, and while there isn’t anything particularly wrong with DRQ or its prospects, it has gotten ahead of itself in terms of the “buy-out” potential. DRQ shares now trade for a P/E of near 30 and forward P/E of around 21. That’s about double the oil service sector’s average and about 5% higher than its normal P/E range.
Given the gains, investors may want sell a bit of DRQ stock.