Yes, No, or maybe Flotek (FTK)

If mining and drilling is the rage for fuels the world can't live without and prices going higher and higher, how can Flotek Industries, Inc. (NYSE:FTK) be trading so low?  Shares are down 50% YTD after cutting their 2008 guidance and trading at $17.  But with a 15% short float could it be setup for a potential short squeeze?

The Fly at iBankcoin.com seems to think so and for those of you that don't read him and his crew, you should:

From the Fly: If you’re interested in a potential short squeeze, take a gander at (FTK: 17.75 +3.80%) again. With 4 million shares sold short or 15% of the float, and crude/natty going up, this sucker has a potential to print $20+ again.

The downside surprise has been eliminated, at least in the near term, due to the company’s recent guidance. And, if you’re a glass half full type of guy, one can make the argument that the current eps estimates represent a very low bar for the company.

In short, trading under 15x, FTK can easily rip to the low 20’s and start a short squeeze, especially since the stock trades on thin volume.

Then there's Toby Shute at Fool.com, that says stay away from Flotek:

Fellow Fools, I must disagree with you. You have awarded Flotek Industries (NYSE: FTK) a top ranking of five stars in Motley Fool CAPS, with approximately 98% of All-Stars making outperform calls. I just don't see it happening.

Sure, I have the benefit of hindsight. The company just slashed its earnings guidance and the shares took a dive. But this little plunge invited a closer look at the company behind the stock. I do not foresee good things for the oilfield equipment and chemicals specialist.

Flotek has expanded at a rapid clip over the past five years, driven by large acquisitions. It's been a capital-intensive expansion, requiring significant debt financing. While revenue growth has compounded at more than 70%, so have capital expenditures. The company's acquisitions have also left so much goodwill (payments in excess of the fair value of assets) on the balance sheet that this line item accounts for over half of total assets. The company's tangible book value is negative.

This goodwill situation might be understandable in a cutting-edge technological field where Flotek is top dog. But the company operates as a small competitor in a fiercely competitive and rather commoditized space. Rival oilfield servicers like Schlumberger (NYSE: SLB), Halliburton (NYSE: HAL) or Baker Hughes (NYSE: BHI) could roll over and squish Flotek in the night. Given that the firm is spending only around $1 million per year on R&D, I don't see the company out-innovating its peers, unless its acquisitions are way more game-changing than they look.

There's no shame in growth by acquisition, if done right. National Oilwell Varco (NYSE: NOV) is a top example of an efficiency wringing, oilfield services sponge. Flotek just doesn't appear to be executing on that level, and it also doesn't have a chance of becoming a dominant player such as NOV has become in the rig-building game. Those companies are already entrenched.

Here's an example. Flotek cites price-cutting in the rental tools business as a source of margin pressure. The aforementioned competitors are not about to let a little price war shake them out of the space. This detrimental activity has to hurt Flotek, a less diversified entity, more than it hurts someone like Baker Hughes.

My CAPS compadres may ultimately prove me wrong -- it certainly wouldn't be the first time. But for now, I'm not going with the flow. Join the conversation on Flotek with a pick or pan of your own by clicking right here.

Chart on FTK:

Recent Analyst Take:

Masters, if anything FTK deserves your attention, the stock has been just hanging out since March in the $15 to $17 range.  Should any good news come Flotek Industries way, it could be a quick buck waiting to happen.

Disclaimer: No positions in FTK.