Fracking Stocks: Paradigm Oil and Gas (PDGO)
From time to time I get questions on small-cap energy stocks. I’m happy to give a quick run down on specific companies, but just so long as you realize I’m not giving buy or sell recommendations. I’m merely giving my opinion.
So with the legal stuff out of the way, let’s get to it…
Dave G. wrote-
“How about PDGO, as it looks like it might be ready for a buy out and it is getting positioned for this, as I see it.”
Since my main area of focus is the energy industry, I’ve heard of pretty much every oil and gas company out there.
But PDGO had me stumped…
I’d never heard of it. But after a few minutes of research, I found out why.
PDGO is a pink sheet company, which trades on the over-the-counter (OTC) market.
In case you’re unaware, the OTC is the Wild West of investing. Unlike the major stock exchanges, companies are not required to report their financial results to the Securities and Exchange Commission (SEC).
As a result, you’re essentially taking the company’s word that what they say is true.
I often wonder why investors venture into pink sheet energy companies when there are thousands of legitimate oil and gas names trading on major exchanges.
Anyways, that’s the first red flag for PDGO.
And there’s much more…
A quick look at the company’s flashy website reveals even more reasons to be cautious.
Apparently, PDGO has operations in Oklahoma and Texas. However, I could find little information on exactly where the company’s assets are. A click on the “operations” tabs leads to a blank page.
I don’t know about you, but the lack of asset information on PDGO’s own website makes me highly suspect. Again, since the company doesn’t report to the SEC, you have to wonder if they have any oil and gas assets at all.
Red flag number two.
I did manage to find PDGO’s financial statements on Yahoo Finance. What I saw was, shall I say… interesting.
Full year 2013 revenues came in at $75,000. Meanwhile, abnormally high general and administrative (G&A) expenses totaled a whopping $1.3 million. All told, the company lost $1.54 million last year.
Looking at this year’s quarterly results didn’t make their case any better.
PDGO had no revenue ($0) in Q1 2014 and $35,000 in Q2. Thanks to nearly non-existent sales and more curiously high G&A expenses, PDGO has already lost nearly $640,000 in the first half of 2014.
But the most troubling thing I see is on PDGO’s balance sheet…
As of Q2 2014, the company has $55,000 in current assets and a whopping $564,000 in current liabilities.
Teaching moment…
Whenever you see a balance sheet like this, don’t walk, run the other way!
PDGO has a severe working capital deficiency. If the company had audited financial results, they would have “going concern” language all over them. To be frank, I’m not sure how this company is staying in business.
My opinion…
If the company is positioning itself for a sale, as Dave G. suggests, it’s not likely going to be to the advantage of shareholders. Since the company is clearly in a distressed financial position, equity investors will likely be left holding a bag of hot air.
And let me mention one last thing…
A long-term chart reveals PDGO traded over $19 for a short period in 2010. But now that shares have plummeted to a whopping $0.0028 (yes, less than a penny), it should be abundantly clear this is one “energy” company you want to steer clear of.
Until Next Time,
Justin Bennett
Category: Energy
