As the Petrofac (LSE: PFC) share price continues to trade near all-time lows, I can’t help but wonder if there’s a buying opportunity right now.
Let’s take a closer look at what’s happened and whether the shares could climb upwards once more. If they could, buying cheap shares now could be a shrewd move.
Slumping shares
As a reminder, Petrofac is an oil and gas facilities service provider. It helps oil and gas production businesses by providing essential infrastructure needed for production.
As I write, Petrofac shares are trading for 28p. At this time last year, they were trading for 82p, which is a 65% drop over a 12-month period.
However, these past 12 months have simply been a continuation of a downward trend for a few years now. Over a five-year period, the shares are down a mammoth 95%, from 504p to current levels.
What’s happened and should I buy some shares?
A disastrous cocktail of falling revenue, increased borrowing sending debt levels higher than ever, and other scandals have contributed towards Petrofac shares falling sharply. In addition to this, macroeconomic volatility of late wouldn’t have helped either!
Declining performance is never a good sign. It can often lead firms towards looking to increase their borrowing facilities to keep the lights on and stimulate growth. Debt on a balance sheet is rarely a good sign. However, when a company is making money and growing, I’m comfortable that it may not impact share price, growth, and investor returns. Without the positive performance and growth, Petrofac shares have been struggling badly.
Moving on, back in 2021, the business was found guilty of failing to prevent some of its employees from bribing officials for contracts. The firm was fined £77m and suspended from bidding on certain contracts. Reputation and financial damage is often prolonged, and things like this can seriously hurt investor confidence.
Petrofac’s pre-close trading update for the year ended 31 December just before Christmas made for interesting reading.
Positive developments included a contract win worth $1.4bn on a long-term project that could lead to further work as well. In addition to this, the update boasts of “exceptional new order intake“. Plus, the order backlog is rising and should be around the $8bn mark by the end of the year.
Conversely, mentions of debt increasing more than expected, as well as the fact the business is set to record another loss this year, was disappointing. However, it wasn’t unexpected. It’s clear to me Petrofac is looking to strengthen its balance sheet. Plus, it’s working hard to win contracts to secure the future of the business.
What I’m doing now
I wouldn’t buy Petrofac shares today. I’m not alone, as it looks like brokers JP Morgan and Berengberg have also raised concerns around Petrofac’s financial position.
I must admit I’ll be keeping a keen eye on developments to see what happens.
Balance sheet weakness, spiraling debt levels, as well as historical scandals don’t exactly fill me with confidence. The positivity from its most recent trading statement isn’t enough to convince me that a turnaround is on the cards.
