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Forum Energy Not Losing Steam

Clearly, I like this company. And as excited as the Street should be with Forum Energy's potential in terms of long-term order growth, revenue, margin, there are still execution risks here. And this is pretty much the narrative within the entire sector. The difference is, unlike several of its peers, Forum Energy's valuation offsets some of that risk.

On Friday, the company will report its fourth-quarter and full-year earnings results. The Street will be looking for earnings of 40 cents per share on revenue of $399.5 million, which would represent a year-over-year revenue growth of 21%. I wouldn't get too excited by that revenue number, though. Having traded for less than two years as a public company, Forum Energy is still young.

In this case, investors should be focused on the bottom line. And if the company does meet or exceed 40 cents per share, this means profits would have jumped more than 50% year-over-year. It would also indicate that management's recent plans to improve both operating margins and revenue are working.

The strong jump in profits should help pay down some debts, which management used to finance the company's roll-up strategy, including the company's six acquisitions completed in the trailing twelve months.

In many respects, Forum Energy's debt of more than half a billion dollars (which financed its aggressive growth plan) is what has kept most investors at bay. It's a legitimate concern, but it's manageable. And this quarter's profits should demonstrate how cheap this stock is. Fair-market value should reach $35 per share over the next 12 to 18 months on the basis of continued international growth and strong orders.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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