New Position - Akita Drilling

I remain bullish on the oil services sector, it has been performing very well recently, I took a position in a very cheap Canadian services stock this week, that had some pretty impressive earnings.

Akita Drilling - Market cap $69 million Canadian.

I took a position in the stock last week, when it initially showed up on my stock screener, it fit my technical criteria for entry and also happens to be extremely undervalued and fundamentally strong. Some of my best wins have been when the technicals and fundamentals are both bullish and line-up. I will go into the technical set-up first.

Overall Market Health and Sector Strength -

As you know the general market has been ripping recently and breakouts in the right stocks have been rewarding, market breadth is much improved even as we go through a pullback currently. The probabilities of success are in our favour at the moment. I am aware this could change very quickly and recommend using stop losses on your positions.

The oil services sector has been one of the best performing this year and the stocks still remain extremely undervalued and historically cheap compared to past levels. Akita Drilling was over $8 a share in 2018 for comparison to current levels. At the current oil price these stocks are raking in money, so even if oil hovers here, these stocks are going to continue paying off debt and making money.

Relative Strength -

The stock broke out against the $SPX at the end of July, and is currently outperforming the general market, the last time it broke out against the $SPX was in October of 2022 and the stock rose 63% in a matter of weeks.

Volume -

On the breakout week well over 500k shares were traded, this is nearly 5 times average weekly volume compared to what it’s been doing recently. This all occurred as investors raced into the stock after a great earnings report. This is the kind of bullish behaviour one wants to see.

Resistance -

The stock had been stuck in a trading range from February of this year as it was consolidating, on it’s breakout week we broke out of this range and all the near term resistance. There still is some potential longer term resistance ahead, so trading could be a little choppy but I ultimately expect this to clear.

Moving Averages -

We just had the 50 day moving average cross over the 30 week moving average, which is always a bullish sign. Both are turned up and the stock is well above both levels.

Okay so let’s take a look at recent earnings and fundamentals.

The company reported earnings which was the catalyst for it’s breakout, The Company's net income increased to $6,177,000 in the second quarter of 2023 from a loss of $4,252,000 during the same period of 2022. This was the second most profitable quarter in the companies history, you have to go back to 2006 to beat it.

Debt decreased to $79,670,000 at the end of the second quarter of 2023 from $94,601,000 at the same time in 2022. They have already paid off $14 million of this debt this year and we can expect this to continue in H2. They are on track to exceed the goal of paying off $20 millio for the year.

What’s also worth noting is they had this extremely bullish quarter, even amongst having due to deal with alot of downtime in Alberta due to wildfires. During the second quarter of 2023, AKITA's adjusted operating margin fell slightly to $3,664,000 compared to $3,907,000 in the same quarter of 2022. Activity was the key driver for this decrease as the wild fires in Alberta forced two rigs to shut down, which reduced the number of operating days in the quarter to 471 compared to 569 in the second quarter of 2022.

Akita Drilling currently trades at a huge discount to book value, the ratio today is .464, Book value is currently north of $3.50 a share. Which makes this extremely cheap and my opinion undervalued. It’s the story of many stocks in this sector.

So in summary you have a stock, that is technically strong, has very strong earnings that should continue in the near term and continues to pay off debt. This stock has high reward potential in my view.

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