Is this turnaround stock a falling knife to catch after dropping 45% in 2017?

Could this company be about to deliver a stunning recovery?

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A share price fall of 45% since the start of the year suggests that investor sentiment is exceptionally weak. However, it also indicates that the company in question could post a strong turnaround if it is able to rectify the challenge or difficulty it is facing that has made its valuation slump to such a large degree. Certainly, the trend of a downward movement could continue in the short run. But in the long run, there could be an improved outlook for this major faller.

Disappointing update

The company in question is oil and gas exploration company Pantheon Resources (LSE: PANR). It operates via several working interests in conventional projects onshore in Texas, and has therefore been negatively affected by the sustained period of extreme weather in the region.

It released an update on its recent operational activities on Wednesday. Tropical storm Harvey has impacted all of south and south east Texas, with rainfall in some areas exceeding 40 inches. More rain is forecast over the coming days as the storm is forecast to move northwards. This means that the company’s operations have been suspended, with everything having been made secure prior to the storm reaching the region.

While Pantheon Resources has no information to suggest any of the wellheads or associated facilities have been compromised by high water levels, the human resource needed on-site to continue operations has been impacted by the local conditions. It is unlikely to be until early September that it can assess damage to locations and roads. In the meantime, its operations will continue to be suspended.

Share price

Due to the challenges faced in Texas, it may be the case that Pantheon Resources experiences further share price declines in the near term. There is no guarantee that its operations will be in good working order following the tropical storm. This means that there is a risk of further pain for the company’s shareholders in the short run.

However, looking ahead to next year, the company is expected to move from loss into profit. This could stimulate investor sentiment and lead to a recovery from its disappointing share price performance since the start of 2017. In the near term, there could be further large falls in its valuation. But in the long run, it could mount a successful recovery.

Growth opportunity

Also expected to move from loss into profit next year is fellow oil and gas exploration company, Cairn Energy (LSE: CNE). It has benefitted to at least some extent from the lower oil price of recent years, with the cost of exploration and development spend decreasing across the industry. As well as this, the company has been able to execute its strategy and it is expected to ramp-up production over the next few years from multiple developments in its portfolio.

With the company having a diverse range of assets, it could deliver impressive earnings growth over a sustained period. While there may be more reliable, lower-risk and more profitable business on offer elsewhere within the sector, Cairn Energy could prove to be a surprisingly strong performer over the next few years.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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