NEW YORK (TheStreet) -- Shares of Lucas Energy (LEI) are up 5.24% to $7.03 in afternoon trading on Tuesday after the company unveiled a purchase agreement to acquire various properties from Hunton Formation Holding.
The company's stock fell as much as 12% in pre-market trading Monday following an analyst downgrade, but have since rebounded as the company continued to rise following its $81 million acquisition. The company's stock rose over 8% on Monday.
The independent gas and oil company's stock more than quadrupled following last week's purchase, however Euro Pacific analyst Joel Musante set a $1 price target on the stock.
Analysts at Euro Pacific wrote that the company's acquisitions are will not provide sufficient coverage for the $31.4 million debt it assumed in the transaction.
Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate LUCAS ENERGY INC as a Sell with a ratings score of D. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LUCAS ENERGY INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for LUCAS ENERGY INC is currently extremely low, coming in at 1.38%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -328.62% is significantly below that of the industry average.
- Net operating cash flow has decreased to -$0.45 million or 46.71% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- LEI's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 45.55%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- LEI, with its very weak revenue results, has greatly underperformed against the industry average of 36.9%. Since the same quarter one year prior, revenues plummeted by 70.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full analysis from the report here: LEI