GMX Resources: On The Way to School or Investing Success?
On the way to school I accidentally ran into a stock! I hadn’t seen one before, so he and I had a friendly conversation. His name was GMX Resources or GMXR for short.
He said he is quite small relative to most in his field, and his P/E Ratio is around 45, which is high compared to the overall industry average of 26.82. This tells people not to buy him, but if you plan 6 months into the future, you would know that this stock is undervalued. I am extremely bullish on oil and gas in the next 6 months, since I met him. He was once above $80, and now is at $5. Even considering all stocks are way down from their all-time high, he is still a bargain. Many people would say that he is way too risky of a stock, because he is trading around $5 per share, but he isn’t. I am only 14 years old, and the way I look at this is-the downside on this stock is that it goes to zero (very unlikely), and the upside would be around $80 price per share. Let’s say we buy 100 shares at $5 and the stock only rises to $40 in 2 years. Then, you would make $3500 in two years. The initial cost of the investment was only $500 and we made $3500 on it. That is a 700% return in two years. The downside in this situation is that the stock goes to zero, so you only lost $500. When you are 14 you have time to recover from losses.
Also, after the third quarter in 2010, GMX Resources released his income statement that revealed that its total revenue was $24,833, 000. Their cost of revenue was only $2,790,000. The great thing about the oil and gas industry is that once he gets the oil and gas wells built, the only cost is for running the wells and payroll. Another attraction to me is-as of the third quarter of 2010, GMX Resources has constantly increased his assets, which makes me think he will continue to do so.
The only concern of mine for this stock is the long term liabilities he has taken to buy more property and wells. Although debt is never wanted, I believe that having these wells bringing up more and more oil and gas is good for the fact that he can make way more money on this oil and gas to pay off all his liabilities. With all these long term liabilities, he has significantly increased his assets by buying all of these wells. He has $545,591,000 in just his property plant and equipment. This makes the stock much more valuable to me. As stated before, the more assets in wells that just suck the oil and gas right out of the ground with such a low cost of revenue is splendid. It shows that this company is planning for the future.
To be reassured that this company will go up, we can do a trick where you divide the equity of the stock ($265,432,000) by the shares outstanding (28,260,000) to get the book value of one share at $9.39.
Also, just on March 7, 2011, James Merrill, an officer at GMX Resources bought 11,500 shares when the stock price per share was $5.59. On March 4, 2011, Thomas Casso, a director at GMX Resources bought 6,500 shares at a price of $5.60 per share. This is great news for the company. Even in the last month, the stock has been above $6 a share, which means the stock could just be taking a dip and will rise back up. I currently bought this stock in my personal fund around five dollars, because I knew there was a great chance of it rising to the book value of $9.39 each share in the next couple months.
It will just be a matter of time until this stock “pops” once some of the debt is relieved. The debt is the only thing people are worried about, and if that is gone, the stock will soar. This is why I am glad this stock and I met.
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