InterOil Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: The stock plunge at InterOil (NYS: IOC) that began yesterday has continued today, and now people are starting to pile on even more with the stock down 12%.

So what: Yesterday, the stock dropped because Papua New Guinea's government had said InterOil needs to build a much bigger LNG facility than the company was planning. Today, the worrying about the company's future continues. InterOil doesn't have the balance sheet to build the estimated $6 billion project and the company's current partner, Mitsui, is only providing an advance until the project is completed.

Now what: A Seeking Alpha article published today puts the company's value somewhere in the teens if the LNG project isn't built. Analysts are only expecting $0.72 in earnings per share in 2011, and $0.59 in 2012, so even after the drop of the last two days the stock is trading at a hefty multiple. I would stay far away from this company until the issues in Papua New Guinea are resolved and we know what will be built and when.

Interested in more info on InterOil? Add it to your watchlist byclicking here.

At the time thisarticle was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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