Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.
my firm Crystal Equity Research began a new weblog to which we post a listing
of the “most searched” small-cap stocks.We review the search activity on five different on-line financial
platforms and compose a list of those companies under $2 billion in market cap
that have a stock price of at least $1.00.James River Coal
shown up several days in a row and I thought it worthwhile to take a closer
look.Of course, this is why we think
the “most searched” list is a good tool.
River operates a string of six coal mines in the Central Appalachian region in the
states of Kentucky and West Virginia.It
also runs a metallurgical coal mine in Indiana.The company produced 10.3 million tons of coal in the year 2011.
of James River Coal (JRC) reached an all-time low of $1.68 in July 2012.The stock has recovered a bit since, but at
the current price of $3.15 is still nowhere near its historic high price near
$60.00 per share set in mid-2008.
one of the principal culprits in global warming, coal is out of favor.Extreme weather conditions have brought the
reality of environmental degradation and climate change literally to our
doorsteps.Instead of protesting tough
regulations for toxic emissions, utilities with coal-fired power plants in
their network are touting their efforts to shutter the older smoke-belching
plants for new, efficient co-generation plants that require less coal.
has had a spotty profit record anyway.Despite a strong record of increasing sales, it has reported a net
profit in only three out of the last ten years.The company does manage to generate cash from operations, but over the
last five years that cash flow has fallen short of capital investments.The inability to maintain the company’s plant
and asset base with internally generated cash is one of the reasons JRC has
taken on new debt.
debt has tripled over the last five years and now it is carrying more debt than
most in its sector.This might be
tolerable if the company’s profit situation was more reliable.Profitability was improved until
recently.The gross profit margin was
17% in the year 2011, which compared quite favorably to a profit margin of 9.1%
four years earlier.However, coal prices
fell off in recent quarters, sending the profit margin back to the 7.5% level
in the most recently reported twelve months.
is a bit concerned about the debt also and took advantage of favorable
conditions to retire $61.4 million in debt in the fall of 2012.We estimate there is now approximately $148 million
in unrestricted cash on the balance sheet, which offers a bit of comfort
against the $546.1 million in debt we estimate is still outstanding.
chill wind is blowing across James River Coal and the company’s stock is has
suffered the consequences.I do not
expect coal demand to disappear entirely.However, the utility industry appears to have embraced the regulatory
call for environmental responsibility.That means coal orders will never be what they once were for coal
producers like James River.So the
contrarians who want to pick up a stock at a bargain should decide if JRCC
shares are in recovering mode or if the recent rise off the historic lows is
just a temporary bounce.
Neither the author
of the Small
Cap Strategist web log, Crystal Equity
Research nor its affiliates have a beneficial interest in the companies