Approach Resources (AREX) Stock Up 40%+

Approach Resources AREX Stock News

Approach Resources Inc. (NASDAQ: AREX) is seeing incredibly strong gains in the market today, trading on gains of more than 40% on Thursday afternoon. With no news out, some are wondering just what’s going on here.

Nonetheless, it seems as though after years of declines, the stock is making a comeback. Positive earnings revisions seem to be driving institutional investor interest and retail investors and traders are jumping in for the ride. Here’s what’s happening:

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AREX Earnings Expectations Are Changing

It seems as though the reason for the gains has to do with earnings expectations. While Approach Resources is currently operating at a loss, it seems as though analysts have made multiple positive revisions to earnings estimates as of late.

In fact, the fact that earnings estimates are improving led Zacks to upgrading the stock to a Zacks Rank #1, equivalent to a Strong Buy.

A Key Indicator For Institutional Investors

I believe that one of the largest reasons that the gains today are so impressive has to do with institutional interest as earnings expectations improve. At the end of the day, earnings and earnings estimates are commonly used by institutional investors to calculate the fair value of a stock.

In the case of AREX stock, earnings estimates have been improving. As a result, institutional investors are more likely to buy the stock when running their calculations of fair value.

Will Gain Continue?

This is the million dollar question, and the truth is that I don’t have a solid answer to it. However, I do believe that there is strong potential for gains ahead. There are a few reasons why I hold this view:

First and foremost, AREX is coming off of incredible lows. Just look at the chart over the past 5 years. If you were to have purchased the stock five years ago, you would have about 1% of your investment left to speak of.

At the end of the day, there’s got to be a bottom here, and based on recent movement and fundamental data, I believe that the stock has reached it. As such, strong gains are likely ahead.

It’s also worth mentioning that geopolitical concerns are leading to a shift in oil prices. Iran recently shot down a United States drone, leading to suggestions that the US will react by placing sanctions on Iranian oil.

Moreover, a oil tanker attack in the middle east is leading to further concerns with regard to the supply of the commodity. While this can all be viewed as negative, for Approach Resources, this is great news.

After all, Approach is an independent oil and gas company. This means that the company makes its money through the production and sale of oil and gas. Should geopolitical concerns lead to supply issues, the price of oil will head up, giving AREX an opportunity to increase margins as its sells the oil it produces.

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What Do You Think?

Where do you think AREX stock is headed? Join the discussion in the comments below!

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