Shona Energy Company – Poised For Profitable Growth?
Shona Energy Company, Inc. (OTCQX:SHOAF, TSX-V:SHO) is a young company experiencing phenomenal growth in revenues and has just reported profits for the first time. The company describes itself as “an international oil and natural gas exploration, development and production company focusing on South America, specifically Colombia and Peru.”
It currently has two revenue-producing gas contracts and plans to continue increasing revenues and profits by optimizing its producing properties, exploring/developing other properties in its portfolio and trying to acquire more oil and gas properties.
We are introducing Shona Energy to our readers as a company they might never hear about without seeing our profile, but seems to have potentially excellent long term growth prospects – with the added possibility of a big jump in price within the next year or so for near-term profit-taking opportunities. As with most of the stocks of this type that offer the possibility of out-sized returns, an investment in Shona Energy also carries a large risk of loss and is only for investors with a larger than average risk appetite.
Shona Energy just announced first quarter 2012 revenues that were over 16 times the first quarter of 2011 ($6.2 million in Q1 2012 vs. $375 thousand in Q1 2011) and even 55% over the $4.0 million in revenues FOR ALL OF 2011. In addition, it achieved a profitable quarter for what appears the be the first time since the company’s founding.
The company also last week began trading on the highest tier of the OTC Markets Group market – OTCQX International. OTC Markets Group Inc. claims to be the world’s largest electronic marketplace for equities traded over the counter.
Shona is a young company, it only began operations in 2005 as a private U.S. company. Then it became public in 2011 through a reverse takeover of a Canadian company, and began trading on the TSX-V exchange in October 2011. (The TSX-V, the “V” standing for Venture Exchange, is a Canadian stock exchange focused on providing growth capital in a well-regulated environment.) Shona Energy’s stock continues to be traded on the TSX-V and so is now traded on two exchanges.
The company is led by a management team that appears to be highly capable – with decades of experience in different facets of the oil and gas business and experience in a number of countries around the world. Its oil and gas properties look promising and there appears to be enough production on-line already to provide profits.
But as with most of the smaller companies we profile on StockTips.com, Shona Energy presents a great deal of risk and should only be considered as an investment by those with big risk appetites who are prepared, and are financially able, to lose their entire investment.
Risks related to Shona Energy start with the risks associated with almost all oil and gas companies, including the possibility of wild price swings and/or that its as-yet-untested-properties may turn out not to be economically viable. Further, its properties are located in countries that might suffer from political unrest or significant changes in government policies. Such changes could result in onerous regulations, currency restrictions or even nationalization; and in any case unfavorable exchange rate changes could hurt the company. While outcomes such as those described in the preceding sentence don’t appear likely at this time, the risk is always there.
As of December 31, 2011, Shona Energy carried around $60 million in oil and gas assets on its balance sheet. Any significant write-off of these assets arising from the risks noted above, or other risks or factors not enumerated herein, could wreak havoc on Shona Energy’s income statement and balance sheet.
In the author’s opinion, Shona Energy should be looked at as a longer term investment rather than a momentum play. But given the downside risks involved, and on the positive side the chance that upside volatility might offer the chance for some quick profit-taking, anyone who decides to invest in Shona Energy should keep a pretty close eye on it.
Investors in Shona Energy should be prepared to lose their entire investment. Always remember to do your own due diligence, checking up on company filings and consulting with an investment professional.
Additionally, remember our disclaimer.
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