Poor fundamentals helping to move PDC Energy lower

When I evaluate a stock, I try to look at the whole picture—the fundamentals, the sentiment, and the technical analysis. Looking at PDC Energy (Nasdaq: PDCE) we see a company with poor fundamentals, a stock that is trending lower, and sentiment that is mixed.

The fundamentals for PDC Energy haven’t been very good over the last few years. Earnings have been declining for the oil and gas exploration company and it lost money in 2016 and 2017. Tickeron’s SMR rating for PDC is 80, indicating weak sales and an unprofitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents.

Sales growth for PDC has been pretty good for the last few years, but analysts expect sales to decline by 21% for 2019. Because the company has been losing money, the return on equity is zero and the profit margin is -16.4%.

The Tickeron PE Growth Rating for PDC is 100, pointing to worse than average earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents. A rating of 1 indicates highest PE growth while a rating of 100 indicates lowest PE growth. Earnings have been declining over the last few years.

The Tickeron Profit vs. Risk Rating for this company is 100, indicating that the returns do not compensate for the risks. PDCE’s unstable profits reported over time resulted in significant drawdowns within these last five years.

Turning our attention to the technical analysis, we see on the daily chart that the stock has been trending lower over the last four months. The stock gapped lower on May 2. If we connect the bottom of the bar just before the gap with the high from July 1, it creates the upper rail of a downward sloped trend channel. The stock just hit this rail on August 29. The parallel lower rail connects the lows from May and August.

We see that the daily stochastic readings had reached overbought territory as of last week, but the indicators made a bearish crossover on September 3. The Tickeron Trend Prediction Engine generated a bearish signal on PDC Energy on August 30 and the signal showed a confidence level of 78%. Past predictions on the stock have been successful 80% of the time.

In addition to the signal from Tickeron’s Trend Prediction Engine and the bearish crossover from the stochastic readings, the higher Bollinger Band was broken recently. This means a price fall is expected as the ticker heads toward the middle band, which invites the trader to consider selling, shorting the stock, or exploring put options. In 35 of 45 cases where PDCE's price broke its higher Bollinger Band, its price dropped further during the following month. The odds of a continued downtrend are 78%.

The sentiment toward PDC Energy is mixed. There are 25 analysts following the stock with 18 “buy” ratings, six “hold” ratings, and one “sell” rating. This puts the buy percentage at 72% and that is right in the average range. However, you want to consider the fundamental performance of the company and ask yourself, “does this stock deserve to have an average buy percentage?” That is how I look at analysts ratings.

As for the short interest ratio, the current reading is at 5.26 and that is above average which indicates higher levels of pessimism toward the stock. In addition to the current reading, you want to consider the trend in the ratio as well. For PDC Energy, the ratio has been trending lower in the last few months. The ratio was over 10 back at the end of April.