Mammoth Energy Services Stock Summary

Mammoth Energy is trading at a deep discount to book value with a large cash balance and no debt

Dec 22, 2024

Mammoth Energy Services is a microcap company that is trading at a large discount to its book value. What caught my eye was that Mammoth received an $170M payout from the Puerto Rico Electric Power Authority (PREPA). Several years ago Mammoth did utility repair work for PREPA after Hurricane Maria. PREPA owed them a lot of money for this work, but then ended up going bankrupt. This means TUSK has been spending the last few years trying to get this money they were owed, but they finally got their money. When a stock receives more than their market cap in cash, I’m interested.

Mammoth is diversified across infrastructure repair services, oil well drilling services, and frac sand mining. The infrastructure repair involves repairing power lines and equipment for utilities after a storm. Frac sand is used in the “fracking” method of drilling for oil. Sand with specific properties are used, and is more commonly found in Wisconsin and neighboring states. The company owns two mines and some processing facilities. Over the past few years, the sand mining and oil drilling businesses have seen declining sales and bad margins due to fixed costs. Sales in the infrastructure repair are about 60% of revenue.

TUSKs financials this year are misleading because the money Puerto Rico owed inflated the companies accounts receivable. Now that the company knows for sure how much they will get, the reserve needs adjusted, causing large non-cash losses in Q2. That being said, the company is rarely profitable, but they have quite large depreciation charges and have been spending almost half of their SG&A on legal fees. On the plus side, TUSK used some of the PREPA cash to pay off all their debt. The CEO recently announced he is stepping down, hopefully the replacement can increase profitability and provide some return for shareholders

I believe the latest equity value on the balance sheet is close to being accurate since the Puerto Rico settlement converts from accounts receivables to cash, and the cash was partly used to retire debt. This means the equity value is about $268M, or a book value of $5.56. The stock is trading around $2.85, which is about 50% below book value. This discount to book value is enticing.

One catalyst to get the stock price trading closer to book value is the company to show some improved profitability. Hopefully the new CEO can trim operating expenses, and at least legal costs should go down. The old CEO mentioned using the settlement cash to invest in the business. I kind of hope they do not unless they can start showing some profits. The oil drilling side of the business has been in the dumps, but if revenue increases there could a nice flow of profit due to operating leverage. Perhaps there will be a bonanza in drilling during the Trump administration. Another catalyst would be for Mammoth return a chunk of the PREPA money to shareholders. My hope is that TUSK can pay special dividend or do a large buy back to get the shares trading closer to fair value.

TUSK stock price was much, much higher in 2018 during the last oil boom. The stock did move higher after the announcement of the settlement, but now it drifted down back where it was. This company might be a decent buy in hopes of cash being returned to shareholders, but could also be a call option on increased oil production during the Trump administration. My problem is that I don’t know much about oil well services, and it seems like a volatile business. Mammoth Energy’s historical lack of profits is certainly concerning. At least Mammoth has a clean balance sheet and a good chunk of cash. I wouldn’t want to hold TUSK for the long term, but I think its worth considering and hoping a catalyst to come around to push the share price close to book value.

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