SHLE produces and supplies frac sand for the oil and gas industry. Despite the stock's run, the stock remains very cheap at 7X earnings. Growth has been solid, with revenue doubling since 2021. EPS bounces around and is expected to drop sharply this year from a big surge in 2023. But then EPS is expected to more than double in 2025. The company remains leveraged, with debt more than 2X cash flow. Debt declined only a little bit last year with the strong earnings. Its small size, sector and cyclicality add risks here for sure, but the stock decline since April and the valuation likely reflect the situation well. It is the type of stock that will run, until it doesn't. A shift in the sector or any issues would still see it decline further, even at a low valuation. So we are mixed here. In a cyclical industry it can sometimes just be a waiting game: at some point, there will be a shift. But of course things could improve as well in the sector and the stock could easily return to its old highs under an alternative scenario. Considering consensus (only two analysts, however) we would see the outlook as decent here. Main threats would be higher rates (not likely), lower O&G prices (who knows?), regulatory issues (always a question), or execution issues. We think $11 would be a good price for an initial, small position.
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