Small-Cap Spotlight: Dawson Looks Awesome

In this week's Small-Cap Spotlight, Frank Curzio and Larsen Kusick take a close look at Dawson Geophysical(DWSN Quote), a seismic data provider that has seen its stock surge this year. But is the stock overvalued or does this growth play have more room to run?

Curzio: Stock Still Has Upside Potential

In today's marketplace, it's important to take into account current market conditions and look at areas that are not as vulnerable to a slowdown in consumer spending, and Dawson Geophysical fits this profile. I think the stock is going higher.

Dawson provides onshore seismic data services, including processing 2-D and 3-D data, for major oil-and-gas companies that are cash rich and spending on exploration since they need to look deeper and in unconventional fields to meet growing demand.

Tough Market? Go Underground With Small-Cap Dawson

This demand was not only evident in Dawson's 63% increase in EBITDA (earnings before interest, taxes, depreciation and amortization) from fiscal 2006 to fiscal 2007, but the company expanded its working crews to 15 from 12 over the past 12 months. Further increases in crews could be in the works, as management stated last quarter that demand for services for exploration activity by clients remains at an all-time high.

Looking at the stock price, shares have surged more than 100% on the year but have pulled back 15% from their 52-week high of $85.67 back in September. According to Capital IQ, shares are trading at 16 times next year's earnings -- or in line with the industry average. However, Dawson is expected to grow earnings by 24% over the next three years, so I believe the stock still has room to run.