Houston American Energy (NYSEAMERICAN:HUSA) is an oil and gas exploration and production company that produces natural gas, crude oil, and condensate based in Houston, Texas. News is a key force that moves stocks, but the latest specific news for HUSA stock was a press release dated Jun. 10, 2021. It mentioned that Houston American Energy will adjourn its annual stockholder meeting on Jul. 22, 2021. We are now in mid-April of 2022 and no other news has been posted by the independent energy company. Is the total absence of news good news for HUSA stock?
I argue that HUSA stock is a penny stock, closing at $3.40 per share on Apr. 12. There are a few important risks with HUSA stock. First, it is not suitable for investors that are searching for low-risk companies to invest in. One very important question investors should ask is: Is their share price liquid and stable?
Shares of Houston American Energy are a classic example of financial and statistical theory failing miserably. Having a Beta (5Y Monthly) of only 0.03, HUSA stock should be very stable and should not follow all the broader stock market volatility. The S&P 500, the benchmark index for the U.S. stock market, has a Beta of 1.0. A lower Beta than 1.0 means lower volatility for a stock price.
What happened is that HUSA stock has been highly volatile over the past three months. On Mar. 4, the closing price was $1.90. By Mar. 7, it had skyrocketed to $11.30. On Mar. 8, it made a 52-week high of $16.61. Since then, it has crashed nearly 80%. The two main reasons for this irrational price rally were Russia’s invasion of Ukraine, the rally in oil prices that followed, and possibly a short squeeze.
Instead of having specific news related to Houston American Energy, we have news related to oil prices that can now move the stock. A warning from the Organization of the Petroleum Exporting Countries (OPEC) that “it would be impossible to replace potential supply losses from Russia” and relaxation of COVID-19 restrictions in China sent U.S. crude oil prices rallying above $100 a barrel. High oil prices are very good news for Houston American Energy as it can generate more revenue.
Looking at its fundamentals, this energy company does not look good. It has very little revenue, only $1.33 million in 2021. Additionally, it has been unprofitable for all years of the period 2017-2021 and it is burning cash. The company is accumulating net losses shown by its retained earnings trend, which makes it very risky. Avoid HUSA stock now for its very poor fundamentals.
On the date of publication, Stavros Georgiadis, CFA 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.
