Yes we know that crude oil prices are trading 40% this year, and no we do not want to call a top to the oil market, yet speculation in crude oil prices has only been outdone by speculation in small oil stocks, to this we call your attention to Pyramid Oil (PDO). With $1.6 million in Q1 Revs and $27 mil in P1 reserves, PDO trading at $44 a share in our opinion would be as if oil was trading at $400 a barrel.
Based upon last quarter’s numbers this company with a typical 5x cash flow should trade more with a stock price of $8, still higher than was just a month and a half ago. That would put them in line with their competition. The comany has not shown any significant P2 reserves that would justify this move. By the company’s own admissions in their filings they are not sitting on what they believe to be a potential oil windfall. Note- we are not saying that PDO is a “scam” but they are a garden variety oil producer with nothing sexy to the story. We are just advising readers that if oil happens to sneeze, we believe that PDO will catch the flu.
We have seen these parabolic run-ups too many times to know how they all end. The stock is currently trading at 6x their proven 07 reserves and for anyone who follows oil knows this is unsustainable. We write this as many readers have emailed us asking what our thoughts were on the run up in this micro float oil name. Cautious Investing To All….and if it seems to good to be true, it probably is.