Flotek (FTK) may be on its way up after a brutal report last week caused a massive selloff that saw the company's stock fall to $8.72 from $18.10. As of Wednesday morning trading, the stock was up about 5%, above $11.
Whether or not the comeback will be sustained remains to be seen, but the stock may become a battleground play as analysts have come to its defense this week and third-quarter 13F filings showed David Nierenberg of D3 Family Funds adding to his position.
Flotek is a Texas-based company that specializes in technologies used in the energy industry. Its core product is Complex nano-Fluid (CnF), a non-toxic solvent that is used to extract oil from rock formations. The company measures the production of wells with its proprietary FracMax tool which also provides data on the output of CnF and non-CnF wells.
Last week John Hempton of Australia's Bronte Capital questioned the validity of data Flotex used in a presentation in September. He found that the production of wells that do not use CnF was understated on the FracMax tool. Shares of Flotek fell 19% on Nov. 9 based on Bronte's report.
Hempton did not go so far to say that the misstatement was deliberate but he raised questions as the company touted its software tool as a key driver of business in several SEC filings and presentations. At the time of writing, Hempton was not available to confirm his position on Flotek.
Also of note, Flotek's CEO John Chisholm, who has frequently appeared in the media, has been absent amid the recent controversy, aside from comments he made in a press release the company issued last week in response to Hempton's report.
In the Nov. 10 press release, Flotek acknowledged that an "unintentional data and processing error" that led to a "miscalculation" about the production of oil wells impacted the "magnitude of the outperformance" of a well that used CnF against wells that did not. Flotek's analysis showed that CnF wells still outperformed. Even so, shares of the stock fell an additional 38%. The company did not reply to Real Money's requests for further comments.
The company also announced that it was forming a three-person verification team to "ensure process precision and data accuracy in FracMax." David Nierenberg is a member of the committee and he told Real Money that he made no change to his holdings in the last week but he is unable to comment further on the company.
The stock took another hit on Nov. 13, as details emerged about a securities fraud class action suit filed against Flotek. The suit alleges that Flotek made "materially false and misleading statements" about its FracMax software that may have induced investors to purchase shares of Flotek.
The stock has climbed this week, though not as quickly as it fell. On Tuesday, Matt Marietta of Texas-based research firm Stephens issued a report in which he ran his own calculations on well production and found that CnF wells outperformed. The company is long Flotek and maintains a $20 price target.
"The efficacy of CnF is what matters," Marietta told Real Money, though he acknowledged that the noise around the FracMax tool "could impact the sales cycle in the short term."
"While management needs to address its lack of precision in its internal sales software, FracMax, and quantify the extent of the data issues, we believe the suggestions of fraud, or implications thereof are premature at best," Marietta wrote is his report.
As the company has seen its market cap slashed in half to $500 million last week and faces lawsuits and increased interest, the stock may have turbulent times ahead.