Oceaneering International: Overlooked Momentum Play

Oceaneering International (OII) is an engineering company that provides services and hardware to companies that operate in the energy, aerospace, and marine industries. I am bullish on the stock.

Momentum Pattern Has Formed

Oceaneering is overlooked by the market, as indicated by its average daily traded volume of 854,850.

The stock has picked up a great deal of momentum lately, with a year-to-date surge of about 30%. Additionally, Oceaneering stock is trading above its 10-, 50-, 100-, and 200-day moving averages, signaling intent from bullish investors.

Momentum plays can be lucrative. In 2014, Carhart released a stock pricing model called the “four-factor model” that discovered momentum as one of the leading indicators of a stock’s future performance.

Of course, this can’t be considered in isolation, but it does help when analyzing a stock’s prospects.

What Ignited the Momentum?

As mentioned before, Oceaneering has a significant ancillary representation to energy producers, meaning the company’s performance is positively correlated with the cash pile-up and subsequent CapEx of primary energy producers.

Energy stocks have performed phenomenally during the past year, with the sector outperforming the S&P 500 by approximately 4x. Furthermore, the energy sector’s CapEx totaled $1.5 trillion during 2021, which certainly had a positive effect on ancillary businesses.

Earnings Analysis 

Oceaneering’s earnings report is clearly very cohesive with fundamental factors.

The company released its fourth-quarter earnings report earlier this month, revealing above-par earnings, beating expectations by $0.03 per share. It’s thought that much of the company’s earnings success derived from its subsea robotics services due to a 10% increase in revenue/days of hire ratio, and an adjusted EBITDA ratio improvement to 31% (from 29% in Q3).

A final aspect worth mentioning is Oceaneering’s success in its Manufactured Products segment, which yielded $103 million in revenue, while absorbing fixed costs better to achieve an EBITDA margin of 14%.

Valuation Metrics

Matters are looking good from a valuation perspective, Oceaneering stock is trading at a P/S discount of 1.3x, suggesting that it remains a growth stock with value in abundance. 

Additionally, the firm’s EV/sales ratio is trading at a 61.8% sector relative discount, conveying its ability to produce sales more efficiently than its peer group.

Investor Sentiment

TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on Oceaneering, as 23.9% of investors on TipRanks increased their exposure to the stock over the past 30 days.

Concluding Thoughts

Oceaneering is overlooked by many and could be a solid investment in a challenging market. The stock holds value in abundance amid a surge in the energy industry, subsequently bolstering its offshore energy services offerings.

The company’s appealing EV/Sales multiple indicates that we’re looking at an entity with an ability to squeeze the maximum amount of revenue from its business model.

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