Kodiak Oil & Gas: Is Its Stock Growing Too Fast?

It's always exciting to watch one (or more) of your stocks take off for the moon. This year has brought plenty of rocket launches, some which are reversing long losses and others that are just continuing upward. But nothing continues forever. A company without fundamental earnings growth can send its stock price tumbling like a rocket without enough fuel. I'll look at Kodiak Oil & Gas (NYS: KOG) today to find out how sustainable its momentum really is.

Graphing the growth
By digging down beneath the news cycle that drives many stocks, we can find whether the hype is real, or if a rise is lifted higher by hot air alone. A company should be improving its profitability along with its revenue in order for investors to take it seriously.

Kodiak just made it into the energy industry's top performers list last year, but much of that growth came during the last few months of 2011. That barely scratches the surface of its stock rise post-recession, absolutely trouncing the market to a gain of over 3,000%. That wasn't the only thing heading higher, as revenue has been on a similar trajectory:

Chart by YCharts.

The stock price has galloped ahead in anticipation of greater production and larger proved reserves.


Chart by YCharts.

But what does it mean?
Evaluating a company with headwinds this strong can be difficult. Kodiak's trailing P/E of 50.6 looks inflated until forward expectations come into play. With a forward P/E of 9.3 and anticipated sales growth this upcoming quarter clocking in over 800% higher (full-year estimates peg Kodiak's 2012 revenue growing 425%), it's little wonder that most analysts still view the company as a good buy.

Other Bakken players are also expecting major growth, although few have either the specific estimates or the lofty expectations of Kodiak. Samson Oil & Gas (ASE: SSN) doubled its revenue last fiscal year and has a price target of $6, but has only one analyst on its tail compared to the nearly 20 following Kodiak. Whiting Petroleum (NYS: WLL) is expected to grow sales by only 17% this year, and Bakken behemoth Continental Resources (NYS: CLR) may grow only 28%. They both look positively anemic next to Kodiak.

Foolish final thoughts
It's fairly unlikely that Kodiak is on an unsustainable trajectory, and there seems little give to triple-digit oil prices per barrel. A larger oil driller might even decide to buy the company outright for access to its plentiful Bakken acreage. So as long as Kodiak keeps finding oil and getting it out of the ground in ever-greater quantities, it should be a solid addition to any energy-focused portfolio.

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At the time thisarticle was published Fool contributorAlex Planesholds no financial position in any company mentioned here. Add him onGoogle+or follow him onTwitterfor more news and insights. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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