Shares of asset-light energy services provider Core Laboratories (NYSE: CLB) fell about 6% in morning trading on Tuesday. There was no material news from the company, but there was some notable energy sector volatility that’s likely to blame.
The prices of oil and natural gas don’t directly impact Core Laboratories’ financial results, since it isn’t an exploration and production (E&P) company. But the commodities are indirectly vital to its top and bottom lines because Core Labs offers its technology-driven well-enhancement services to the E&Ps, which themselves are affected by rising and falling energy prices.
When prices rise, E&Ps tend to increase their capital spending plans; they usually do the opposite when energy prices fall. They were falling today and, as such, investors sold Core Laboratories shares as well, assuming that lower industry spending would basically mean less demand for the company’s services.
While the reason for the stock’s decline today is very likely as simple as that, it’s important to note that Core Labs’ shares have been highly volatile over the past year. They have tended to rise and fall in dramatic fashion as energy commodities have waxed and waned — at times well more than the prices of its E&P customers.
That said, over the past 12 months, the stock is up an impressive 200% as oil prices have recovered from their pandemic-driven lows. In the end, investor sentiment has been increasingly positive, even if it has a habit of quickly reversing course on any given day.
Core Laboratories is probably not the best choice for conservative investors interested in the energy sector. It takes a strong stomach to handle the inherent volatility of the stock. That said, it is still down around 25% from its pre-pandemic highs following the recent pullback in energy prices. More aggressive long-term investors who are bullish on oil prices might be attracted to the turnaround appeal here. But that appeal is highly reliant on oil prices strengthening again.
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