Why the Santos Share Price Fell Today

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 Markets and Money

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Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

 


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