Mammoth Energy Services, Inc.

Practically all stocks featured on this website face a significant headwind, which can knock some of them out. Quite a few of them face multiple such headwinds that have beaten their stocks to a pulp.

Mammoth Energy is primarily involved in the provision of oilfield services and electrical infrastructure and is listed on the NASDAQ.

Revenues have tumbled continuously every quarter from $262m in March 2019 to $67m in December 2019 and cash flows have turned negative.

The company was hit severely by the decline in demand for oil services and the run-off of electrical infrastructure work it executed for the Puerto Rico Electrical Power Authority (PREPA) following Hurricane Maria in 2017, which contributed 61% of revenues in 2018.

In addition to the decline in oil demand, the company faces multiple lawsuits in the manner it obtained the PREPA contract. The allegations are that the management of its ‘Cobra’ subsidiary obtained contracts from the US Federal Emergency Management Agency (FEMA) in a non-transparent bidding process.

PREPA owes the company $227m – recorded in receivables – but is in the bankruptcy process itself. The company is banking on receiving the funds from FEMA. PREPA obtained a stay on paying this amount, however, until the fraud charges against the company are cleared. The court has granted the stay at least until June 2020.

The company had net borrowings of $74m under a revolving credit facility as at December 31^st, 2019. As at February 26^th, management indicated it had a further $20.6m it could draw. It has current lease commitments of $16.4m during the year. Liquidity is tight.

The equity is selling at just $36m, practically stub value, when compared to the net tangible asset value of $601m (excluding goodwill). The market appears to be indicating that the equity is likely to get substantially wiped out due to cash flow problems.

Even after excluding $227m owed by PREPA, the equity is selling at one-tenth of net tangible asset value for the equity holders. There’s a distinct possibility that equity holders can get wiped out here, but it’s difficult to see how current shareholders benefit from disposing their interests at such a paltry valuation. The negative prospects appear to be more than priced into this stock.