The share price chart for Amerisur Resources (LSE: AMER) doesn't make for pretty viewing, with around 70% lopped off the company's valuation since August 2014.
The reason for that is clear too, as the oil and gas explorer's previously high-flying profits nearly halved that year, and then crashed to losses in 2015 and 2016.
But while there is certainly some justification for the sell-off, I think it's overdone now that there's a recovery on the cards. Analysts are predicting a return to profit this year, albeit a tiny one, but the impressive earnings forecast for 2018 would drop the P/E to a lowly 10.
Admittedly that's more than a year ahead, and oil prices are still low and potentially volatile -- so there's risk, but I see it as overblown.
More oil discovered
An update from the company's Platanillo-25 well, which is the 20th in the Platanillo drilling campaign, has been "successfully side tracked to a total depth of 8,620 ft measured depth, on time and budget", and the early signs suggest there's an oil column of 22 feet in the 'U sand' formation. The company says it "expects to initiate commercial production from the U sand ... in approximately 10 days."
This follows on from the interim report in September which revealed a 69% rise in production to 4,475 bopd, with 8 mmbo produced from Platanillo by that time. Revenue was up 57% to $38.2m and adjusted EBITDA came in at $7.6m with net cash of $8.5m generated. I reckon forecasts of pre-tax profit for the full year of around £6m (approx $8m) are looking too conservative.
Amerisur had cash of $29m too, so I see no liquidity problems. Profits over the coming years could be erratic, but I rate Amerisur a buy.
Another resource stock I like the look of is Jubilee Platinum(LSE: JLP), which released a Q3 update Thursday.
Operating revenue grew by 48% to £2.67m, with operating earnings up 193% to £0.85m. The firm's Hernic mine saw operational earnings soar fivefold to £0.5m, with a production cost per ounce down to $476 from $901 at the same stage the year before.
With the company's existing ops starting to bring in the cash, we could be looking at the start of a long-awaited turnaround now, after years of net cash burn. Losses have been falling quickly, with 2012's loss per share of 2.43p falling to just 0.27p in 2016, and investors have been confident enough to keep buying the shares over the past couple of years.
In fact, at 4.4p today, the price is around double its early 2014 levels. But there is one major caution here...
Penny share risk
Penny shares can mean volatility. And no company starts out with penny shares -- Jubilee shares were fetching as much as 120p back at their 2007 peak. That really does show the chance you're taking when you invest in a speculative cash-burning 'jam tomorrow' stock and the jam takes much longer than hoped to turn up.
You should only invest in a share of this type if you really know what you are doing, but I can't help thinking that Jubilee could finally have a profitable future ahead of it -- and it does have further exploratory projects in its pipeline in addition to its productive mines.
If I did buy, it would be for at least 10 years and hopefully longer, to counter short-term volatility.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Amerisur Resources. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.