1 Oil Industry Stock Worth Digging Into

Dawson Geophysical (NAS: DWSN) knows that rocky surfaces often hide great value underneath. The company blasts shockwaves through the earth and maps the resulting echoes to help energy producers find underground deposits of fossil fuels. Dawson's shares have dropped more than 35% in the past year, but that decline could conceal an intriguing investing opportunity.

Untapped reserves of excellence
Since 2008, U.S. production of both natural gas and crude oil has steadily risen. But while oil prices followed upward, natural-gas prices fell dramatically. Though Dawson mostly searched for natural gas prior to 2008, it has skillfully pivoted in the last few years, and now it largely seeks more lucrative oil.

In the third-quarter numbers it released Aug. 9, Dawson posted smaller revenue but far larger profits year over year. Sales shrank 30% to $68.3 million as customers used Dawson's services less in the second half of the quarter. The company's 14 crews won't sit idle, though. Dawson reportedly booked plenty of new jobs in the quarter, and it plans to start operating in Canada next year.

Better yet, Dawson made more -- a lot more -- out of less. Operating profit nearly doubled year over year to $1.79 million, and net profit rose 241% to $1.14 million, as margins for both widened significantly. Not bad for a company that ended its fiscal 2011 slightly in the red.

The fatter margins suggest that Dawson's finally profiting from the millions of dollars it plowed into new equipment and crews in fiscal 2011. The company is deploying more gear to capture even better data for its clients, making its crews more efficient. Alongside higher demand for Dawson's expertise, this superior service also lets the company charge more.

Crude-oil growth at natural-gas prices
The market seems mixed about Dawson's apparent resurgence. On a trailing-12-month basis, the company trades more cheaply than either of its publicly traded seismic-imaging rivals -- the similarly sized Global Geophysical (NYS: GGS) and the much larger CGG Veritas (NYS: CGV) .

Source: Company financial statements; author's calculations. TTM = trailing 12 months. MRQ = most recent quarter.

However, Dawson trades at a modestly higher forward P/E than either competitor, suggesting that investors don't believe the company can sustain its current earnings.

For now, Global Geophysical looks like a better investment than Dawson. For a lower forward P/E, it offers fatter margins and faster net income growth. But if demand for oil keeps rising and natural-gas prices eventually follow suit, Dawson's margins could continue to widen.

Dawson has rebuilt its business in the wake of the recession and invested in new equipment to seize future opportunities. Now might be time for Fools to look more closely beneath the company's surface before the rest of the market realizes that this seismic searcher has begun to bounce back.

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The article 1 Oil Industry Stock Worth Digging Into originally appeared on Fool.com.

Fool writing coach Nathan Alderman was considering selling the Dawson shares he'd held since 2008 -- until he did the research for this article. He holds no financial position in any other company mentioned above. The Motley Fool owns shares of Dawson Geophysical. Motley Fool newsletter services have recommended buying shares of Dawson Geophysical. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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