Why Approach Resources Inc.'s Shares Dropped

Why Approach Resources Inc.'s Shares Dropped

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 Approach Resources dropped 10% today after the company released earnings.

So what: Sales rose 33.8% from a year ago, to $44.2 million, and the company swung to a profit of $495,000, or $0.01 per share. After adjusting for one-time items, the company made a profit of $0.07 per share, in line with estimates.

Management did lower 2013 production estimates from 3.6 MMBoe, to 3.4 MMBoe, due to downtime at a third-party NGL fractionation facility. This is where the real disappointment came today.

Now what: Management still expects to grow production 40% next year by drilling 70 more horizontal wells. I'm also encouraged by a 20% decline in the cost of each well. This wasn't a great quarter, but the plant shutdown is a one-time event, so I don't think it's a reason to panic. Investors are getting a nice discount today, and if operational improvement continues, next year, the stock has room to run higher.

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The article Why Approach Resources Inc.'s Shares Dropped originally appeared on Fool.com.

Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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