For investors in Blinkx (LSE: BLNX) and Gulf Keystone Petroleum (LSE: GKP), 2014 was nothing short of a disaster. Thats because the two companies saw their share prices collapse by 87% and 60% respectively, with Blinkx moving into loss-making territory and Gulf Keystone being hurt by wider worries about the Iraq/Kurdistan region, as well as a lower oil price.
However, since the turn of the year their performance has been remarkably different. Blinkx has soared by 31%, while Gulf Keystone has continued its demise and has sunk by a further 47% year-to-date. Looking ahead, this divergence of performance could continue, and thats why Im bullish on Blinkx, but bearish on Gulf Keystone.
Differing Outlooks
For Gulf Keystone, the future is extremely uncertain. Firstly, it is facing a prolonged period of weakness in the oil price, with supply of oil not falling much in recent months and demand failing to pick up significantly despite an improvement in the performance of the global economy. Secondly, Gulf Keystone is suffering from the political uncertainty that remains a feature of Iraq/Kurdistan and which is severely hurting investor sentiment in the company. Thirdly, Gulf Keystone has a significant amount of debt and, while there are plans in place for regular payments to be made to oil producers in Iraq/Kurdistan, the company ceased the sale of exported oil in favour of domestic sales, which apparently means a lower sales price per barrel.
Clearly, Gulf Keystone is facing a number of significant problems and, while the bulk of its present challenges are external in terms of it having little or no control over their outcome, they still impact negatively on the investment case for investors considering allocating capital to the stock.
Contrast this with Blinkx, and it is clear which company appears to have the brighter future. Certainly, Blinkx is struggling to turn a profit at the present time, and is not expected to in either the current year or next year, but it is part of a growing industry that could deliver long term profit growth. Furthermore, Blinkx has extremely sound finances that, unlike Gulf Keystone, give investors confidence in the companys ability to continue trading while it transitions its business towards higher growth and more profitable areas. In addition, Blinkx is making acquisitions and this positive news flow is undoubtedly helping its share price, with the potential for much more to come over the medium term.
Looking Ahead
While Gulf Keystone trades on a rather low price to book (P/B) ratio of just 1.6, there appear to be many other cheaper stocks in the oil and wider resources sector. Furthermore, it could be argued that other stocks are better diversified and more financially sound than Gulf Keystone, which means that investors seeking out oil stocks have a number of appealing options available to them.
Meanwhile, Blinkx trades on a P/B ratio of just 0.9 and, while it has its own challenges that will take time for it to work through, its appealing valuation, excellent finances and access to a growing sector make it an enticing proposition at the present time.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
