help me evaluate a company as investment ( NYSE:FTO) ?

Question

I am trying to learn how to evaluate companies so I can make a good investment. I have been looking at Frontier Oil Corporation (Public, NYSE:FTO) trading at $26.86

Can someone give me some tip as to how to evaluate this company? P/E: 8.13 - is that good? 52Wk High: 37.80 - looks like they dropped recently but will they recover? 52Wk Low: 15.77 - how likely are they to drop again ?

What else should I be looking for as an investor? In the news they report earnings rise in Q2. Also when is a good time to buy companies stock?

can you please elaborate on risk analysis? I understood everything up until that point :)

Answer 1

I can help you analyze it technically, and give you a different point of view than you've begun. You've already got an excellent fundamental analysis from another Answerer.

Go to Yahoo Finance and pull up a chart of Frontier Oil.
http://finance.yahoo.com/q/bc?s=FTO&t=2y&l=on&z=m&q=l&c=

Now switch to a longer-term chart by clicking on "2y" for a two-year chart.

Nice uptrend, but if you'll notice, the long-term Uptrend has been broken. How much of a "correction" is enough? It will go down until it finds Support for price.

Now switch to the 6 mo chart by clicking on "6m". Notice here that price has found Support at $25, the price of previous Support back in mid-June. And it has made a Double Bottom recently at $25. It looks like it is set up to run higher from here.

Now switch to the 5 day chart by clicking on the "5d". This is an intraday chart, showing price movement at 1 min or 5 min intervals. Notice the Double Top at $27.25 it made on Mon and Tue this week, where price ran into Resistance.

If I were wanting to buy this stock, I would wait until it cleared the $27.25 level on good volume, and buy it around $27.55, and at the point of purchase, place a Protective Stop (open sell order, Good 'til Cancelled), on the other side of the Support/Resistance Line at $26.70.

Alternatively, I would short this stock if it broke Support at $25.

There are two sides to every market, not just the upside. If it breaks $25, it will probably go to $20, the next level of Support that was set in January of this year.

Now for the risk analysis. If you short it at $24.45, and place a protective stop on the other side of the Support/Resistance Line at $25.25, then your risk is $0.80. With a target of $20, your potential reward is $4.45, or $4 allowing for slippage and commissions. This gives you a risk/reward ratio of 5:1, well over the required 2:1 to take the trade.

On the upside, your first target (T1) would be the midpoint to the old high, and is again about $4. So you can see the risk/reward ratio is good on the upside also, especially if price runs to T2 at the old high of $37.80

Stand under?

Answer 2

First, look at the business the company is in. It is a small oil refiner. What has happened to the price of oil lately? It has dropped precipitously. Hence the drop in the price of the stock. If you were to track the price of FTO against the price of oil you would find that they are strongly corrolated even though FTO is not in the oil production business per se. One of its competators is VLO which is a much larger refiner than FTO. If you compare the action of the two stocks over the past 12 months, you will note that they track similarly, but that FTO has out performed VLO.

Neither one of these companies can actually be evalueated based on PE or the relationship of its price to its annual range. It has to be evaluated based on what the prospects are for the price of gasoline during the next 5 years.

Here are a couple of clues to take into consideration. 1. It is very very difficult to build a new refinery. 2. no new refineries have been built in maybe 20 years. In fact many have been shut down. 3. will the demand for gasoline increase or decrease during the next 5 years? 4. what will be the impact of alcohol on the demand for refined oil?

When evaluating a company, earnings stability should be taken into account. How stable is the earnings of FTO?

Hint: they make only 0.01 a share in 2002.


When is a good time to buy companies stocks? When they are really cheap. The last really good time was in 1990. Before that 1981. Before that 1975.

Today some stocks, based on their earnings record and historical prices, do appear cheap. JNJ is one MMM is another. The main question is do investors in those two stocks know something the rest of us do not know.

Answer 3

Since you're looking to evaluate the stock, I'm going to presume you're intending to look at the fundamentals in order to potentially trade it long term.

So, the first step is to look at some basic characteristics about the stock.

PE of 8ish is fine
EPS growth over the last 5 yrs is also good
Cash flow over 5 yr is good too
Price rank vs other stocks also good

Projected EPS isn't so hot though
Company growth ratio going forward isn't great
Accumulation/Distribution is VERY LOW
(meaning institutional money is flowing OUT of the stock)
Insider trading is a negative too
And the group rank is in the bottom 2% of all sectors

So for a street curb appeal, the stock is very average compared to the 14,000+ other stocks out there.

Earnings in the past have been good, but going forward, they're very average. This to me is a red flag. So for longer term trade, I'd find something else.


From a technical perspective, as Dre said, it's finding support at 25, however instead of taking off to the moon, I suspect that it will probably slow down around 30ish or at highest 32.50. The recent double bottom suggests that the stock will go to at least 30. But you never know what it'll do after that!

Since it is in the oil/gas sector, you'll want to keep an eye on crude oil prices. It's broken down below 60, but is bouncing at the moment. Technically, oil is set up to probably drop further after the retest of the resistance. This means that if oil doesn't drive up, then FTO will probably continue down as well.

That said, a good way to learn how to evaluate companies is to educate yourself. A good book is How to Make money in stocks in good times and bad by William O'Neill. You can also watch MAD Money by Jim Cramer on CNBC. He's a great fundamentalist who can help give you some perspective.

Those'll be good starting points to give you an idea of what to look like and what to do with the stocks.

Hope that helps!

Answer 4

Not sure why the cash. Take that and put into bonds for a better yield. Increase bonds to 10%. Large cap 50-60%. International and mid cap about 15-20% each.