Is Imdex Limited a screaming bargain?

Those with a tolerance for volatility who are happy to invest for the medium term should give drilling products and services company Imdex Limited (ASX:IMD) a closer look.

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Has the strong market bounce yesterday brought back the bull in you? It is surprising how quickly animal spirits can return when markets recover.

I’m not calling the bottom of the market for 2015 but I suspect some investors might be keen on moving up the risk curve in the coming weeks. As I wrote on Tuesday, this reporting season could be a good one for the market.

For those feeling brave and with an investment time horizon of at least a year, drilling products and services company Imdex Limited (ASX: IMD) is one to watch even as the stock crashed 6.7% to a six-year low of 28 cents on Tuesday.

Its share price chart is painful to watch with Imdex trading close to $1.80 at the start of the 2013 calendar year. It’s been a one way street since then – first thanks to the weak gold price, and more recently the collapse in the oil price.

Both events have caused a sharp cut back in drilling activity and Imdex counts a good many clients in the gold and oil sectors.

However, the gold sector appears to have found its feet and could be facing a big re-rating this year.

Further, some experts are calling the bottom for the oil price, which will be followed by a swift recovery that will catch investors by surprise. South African investment bank, Investec, is betting on oil averaging $US70 to $US75 a barrel in 2015, according to yesterday’s report in the Australian Financial Review. Crude oil is trading under $US47 a barrel currently.

Such outcomes will trigger a reassessment of analysts’ earnings per share (EPS) forecast for Imdex, which has more than halved in the past 12-months to just 2.05 cents a share for the current financial year.

That will put the stock on a price/earnings multiple of 13.7 times. Hardly a screaming buy, but that is still attractive if the forecast represents a bear case scenario.

Another positive is management’s latest quarterly report, which indicates an early turnaround in mining activity. Many of Imdex’s offerings, such as drilling fluids and downhole survey instruments, help clients increase productivity; and that’s one key area all resource companies are focused on.

What’s also encouraging is that Hartleys has upgraded the stock to “buy” from “speculative buy” with a price target of 58 cents, while fund manager Celeste Funds Management has been buying the stock on the recent price weakness to take its stake in Imdex to 9.08% from 7.95%.

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Motley Fool contributor Brendon Lau does not own shares in Imdex.

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