Why Did Forum Energy Technologies Underperform Industry ETFs?
Can Forum Energy Technologies Recover from Energy Price Crash?
Returns and key drivers
OFS (oilfield services) companies such as Forum Energy Technologies (FET) are affected by rig counts and energy prices. In the past one year, WTI (West Texas Intermediate) crude oil prices have declined ~33%.
Forum Energy Technologies’ one-year returns at -34.5% have been worse than the Market Vectors Oil Services ETF (OIH) at -24.5%. The Energy Select Sector SPDR ETF (XLE), the broader energy industry ETF, has a -21% return. Forum Energy Technologies has underperformed the SPDR S&P 500 ETF (SPY), which had -3% during the same period. SPY provides investors exposure to the broader market through investing in the S&P 500 index.
On the other hand, FET outperformed the US rig count, which fell 60% in one year. FET’s peer Oceaneering International (OII) has also underperformed FET, producing -44% one-year return, net of dividends.
How co-related are Forum Energy and crude oil prices?
The correlation coefficient between Forum Energy Technologies’ stock price and crude oil prices from March 2015 to the present is 0.64. This indicates a relatively strong degree of correlation between crude oil prices and Forum Energy Technologies’ stock prices.
FET’s underperformance and strategies
Forum Energy Technologies, in its fiscal 4Q15 conference call, anticipated lower revenue following concerns about further upstream industry activity declines in North America. FET’s inbound order backlog can also dry up further. As sales volume scales down, FET’s high fixed cost can also weigh on its margin. FET is 0.09% of the iShares Russell 2000 Value ETF (IWN).
However, FET’s valves product line sales growth is expected to partially counteract the declines elsewhere. FET expects to expand its product offering in the midstream and downstream sectors, which has done relatively well. This can add to free cash flow going forward. So despite challenges, Forum Energy Technologies may be expected to perform steadily in the medium-to-long term.
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