• Houston American Energy (HUSA) stock rocketed higher, but then coughed up half its gains.
• The company doesn’t really deserve credit for the share-price rally.
• Investors should take profits while they’re still available.

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Houston American Energy (NYSEAMERICAN:HUSA) stock doesn’t have a good risk-to-reward profile at its current price point.

In the first quarter of 2022, we witnessed a repeat of market behaviors we saw a year ago. Specifically, retail traders were pushing low-priced stocks, representing previously under-the-radar companies, to dizzying heights.

Last year, this phenomenon was called the “meme-stock trade.” It’s a little bit different this year, as there’s a commodities-market angle to it, but the ending is predictable — and it doesn’t favor long-term investors.

What’s Happening With HUSA Stock?

Given its low price and the fact that the company was previously unknown to most traders, it’s not unfair to call HUSA stock a meme stock.

Or at least, it’s behaving like a meme stock. With no warning, the share price catapulted from $1 and change in February 2022 to $16.61 in March 2022.

Meme dreams often end in heartbreak, and HUSA is sticking to the playbook as it has already crashed to the $5 area. The main concern is that the stock is going to complete the “Eiffel Tower” pattern: Straight up, followed by straight down and back to the pre-pump price.

It’s fine to trade Houston American Energy shares for a quick “scalp” or short-term gain, if you’re nimble enough to make money that way.

For long-term investing, however, it’s probably best to stick to profitable companies. This is especially true when it comes to oil drillers, as it’s a risk-fraught and highly competitive industry.

So, is Houston American Energy actually profitable? As the math will show, the answer is no. Furthermore, the one factor that’s propping up HUSA stock isn’t necessarily reliable.

It only requires some basic fundamental analysis to figure out that, as an investable business, Houston American Energy just isn’t worth the risk.

Counting on One Catalyst

Here are a couple of bad signs. First, Houston American Energy’s press releases page hasn’t had any new releases since June 2021. Second, the company lists its most recent Form 10-K as covering 2020, and its most recent Form 10-Q as covering the quarter ended Sept. 30, 2021.

So, we’ll have to use what’s available. InvestorPlace contributor and financial wizard Mark R. Hake concisely summed up Houston American Energy’s dire financial situation. He observed that the company’s “revenue for the 9 months ending Sept. 30 was less than $1 million. But its general and administrative expenses were over $1 million.”

I mostly agree with Hake’s conclusion: “Unless something has changed in the last six months that we don’t have access to yet, this guarantees that the company won’t be profitable going forward.”

I say “mostly” because we really can’t guarantee anything in the financial markets. It’s hard to deny, though, that the massive rally in oil is what has prevented HUSA stock from completing a round trip back to $1 and change.

A number of events could cause the oil price to come back down. There could be a resolution to the Russia-Ukraine crisis. American shale producers could step up to the plate. Demand destruction could occur due to high gasoline prices.

There’s no telling what will happen to the oil price. We do know, however, that Houston American Energy posted a third-quarter 2021 net earnings loss (before taxes) of $350,875, and that’s definitely not a good sign.

What You Can Do Now

Apparently, the meme-stock trade is back, but this time with a twist. With oil prices going through the roof, HUSA stock had its pump but it could be in the middle the dump now.

Houston American Energy isn’t profitable, and that’s a problem. For valid reasons, Hake warned investors to stay away from Houston American Energy. I’ll echo that sentiment and add that current investors should immediately take profits, if they have any.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.