Last week was one to forget for Amplitude Energy Ltd (ASX: AEL) shareholders.
The ASX energy stock tumbled more than 40% during the week, as investors exited their positions in the gas and oil supplier.
After such a massive drop, is there any opportunity?
A note out of Morgans suggests there could be.
Image source: Getty Images
Why did Amplitude Energy shares fall?
Investors reacted negatively to an announcement from the company last Wednesday.
The company provided an update on drilling at its Isabella prospect in the Offshore Otway Basin, which it has now assessed as not commercial.
It reported that pressure depletion observed during testing indicates the field is not commercially viable. Consequently, the well will be plugged and abandoned.
This was disappointing news for investors, as some likely bought into the company hoping the Isabella prospect would turn into a producing asset.
When testing showed it isn't commercially viable, that potential revenue stream effectively disappeared.
Additionally, it means the money spent on exploration won't generate a return, which can hurt the company's financial outlook.
What did Morgans have to say?
Year to date, Amplitude Energy shares are now down more than 45%.
They closed trading last week at $1.59.
However it appears there could be upside after such a heavy sell-off.
In a note out of Morgans last week, the broker said Amplitude's share price suffered a brutal selloff after announcing it was now 0-for-2 in its ECSP exploration program.
Isabella well flowed gas to surface but failed to maintain pressure and flow, disappointing given Isabella was the largest resource target in the program. The balance sheet and A$100m H1 EBITDAX buy time, but with two wells left and FID deferred, the next spud is effectively a must-win for the growth thesis.
The broker has retained a buy rating with a revised $3.00 target price.
It did note the risk equation has shifted.
From last week's closing price of $1.59, this target from Morgans indicates a potential upside of approximately 88%.
Bell Potter also optimistic
As The Motley Fool's James Mickleboro reported last week, Bell Potter also believes Amplitude Energy shares may have been oversold.
Its analysts have maintained a buy rating with a reduced price target of $2.70 (from $3.40).
This indicates almost 70% upside.
There are short term risks associated with the market's response to outcomes of the ECSP drill program currently underway. However, ECSP should lift production from 2028, with the development of an existing discovery and two relatively low-risk exploration prospects which on success could be tied into latent existing pipeline and processing infrastructure capacity.
