Venoco 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: Shares of independent energy company Venoco (NYS: VQ) were off as much as 10% in intraday after the company reported third-quarter earnings.

So what: Were third-quarter results really as bad as the stock performance suggests? Yup, pretty much. Production was down from a year ago, and without much seen changing that in the fourth quarter, management decided to ratchet down its 2011 production guidance. The lower production held back total revenue, which, at $78.9 million, was well short of analysts' estimates of $90.6 million. Adjusted profit, meanwhile -- which excludes unrealized commodity gains and losses -- fell below even to a slight loss. Wall Street was looking for a $0.21-per-share profit.

Now what: As an investor, I have a preference toward companies that have a proven track record of consistently producing profits and positive free cash flow while maintaining strong balance sheets. For that reason, Venoco isn't exactly in my investing wheelhouse. For those who have seen some promise in Venoco shares, though, there's good reason to be a bit concerned about the results the company turned out this quarter. However, Foolish investors keep the focus on the big picture, so it's important to consider whether this quarter is a blip for an otherwise sound company or a trend that could continue on into the future.

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