Why the Santos Share Price Fell Today

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What Happened to Santos’ Share Price?

Shares in oil and gas producer Santos [ASX:STO] fell nearly 3.5% today versus an increase of around 0.5% for the broader market. The stock price was over $15 dollars in September 2014 but is now around $8.

Why Did This Happen to STO Shares?

The main reason behind the fall was the near 5% fall in the oil price in US trade overnight. In addition, a story on the Financial Review’s website this afternoon reported that China could experience a glut of LNG (liquid natural gas) in the next few years due to falling demand. STO has large exposure to a number of new LNG projects in Australia.

What Now for Santos?

Santos is heavily dependent on the oil price. Moves in the price of crude oil impact other energy prices like natural gas. Given the 50% fall in oil over the past six months, this puts a lot of pressure on Santos’ earnings.

The market thinks the oil price will rebound quickly and that Santos’ profits will do the same. Consensus earnings estimates predict a doubling of profits in 2016 from 2015 levels. If the oil price doesn’t rebound, then Santos is very expensive at these levels and you should expect more share price falls.

Regards,

Greg Canavan+
for The Daily Reckoning

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Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
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