Should you be worried about Hurricane Energy's (LON:HUR) Piotroski F-Score?

Should you be worried about Hurricane Energy's (LON:HUR) Piotroski F-Score?

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Hurricane Energy plc (LON:HUR) is engaged in the exploration of oil and gas reserves. The Company's acreage is on the United Kingdom Continental Shelf, West of Shetland, on which the Company has approximately two basement reservoir discoveries, each containing approximately 200 million barrels of oil equivalent (MMboe).

Oil exploration companies can be risky investments. Considering Hurricane Energy has yet to post any revenue and reported an increase in net loss from $4.2M to $75.1M in the six months to 30 June 2018, it certainly seems to fit the bill.

Unfortunately, applying the Piotroski F-Score to this energy operator doesn't do much to dispell these concerns... We'll get into this later, but first a quick refresher on what the F-Score means.

The Piotroski F-Score: one indicator to rule them all?

The Piotroski F-Score is a nine-strong checklist split up into three sections, each looking at a different part of a company's financial situation. Its secret sauce is that, unlike most ratios, the F-Score looks more deeply into the direction in which a company’s financial health is moving. Keeping on top of these trends can help us stay ahead of the game.

When a stock gets beaten down it ends up in the bargain basement of the stock market. From here there are generally three outcomes. The stock either:

  • Stumbles along, zombie-like,
  • Tumbles into administration, or
  • Recovers emphatically

Stanford Finance Professor Joseph Piotroski wanted to sort the wheat from the chaff. After settling on the F-Score, he produced some astonishing results.

Why the F-Score does not like Hurricane Energy (LON:HUR)

Piotroski found that weak stocks with an F-Score of 2 or less are five times more likely to either go bankrupt or delist due to financial problems. Working our way through Piotroski's checklist, we can see that Hurricane Energy gets a lowly F-Score of 2 out of a possible 9. Food for thought for anyone looking to hold onto their money. We can see which areas of the checklist Hurricane fails in the graphic below:

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