The main source of worry has been… "severe margin deterioration" as companies have moved drilling rigs away from gas fields amid low prices to those producing more oil or related liquids. As equipment shortages have eased, so has pricing power.
In other words, the shale-gas bonanza is fading for service firms. A quick glance at Schlumberger's performance versus more domestically oriented peers shows that this has been taken into account and then some. Though its shares are off 22% since August, rivals Halliburton Co. and Baker Hughes Inc., which generate more than half their sales from North America, are both down nearly twice as much.
Having already started out with a healthy valuation premium, that leaves investors paying too much for Schlumberger, relatively speaking. On current-year profit expectations, which already reflect the weakness in North America, Schlumberger trades at 16.4 times earnings versus 9.5 times for Halliburton and 11.9 times for Baker Hughes.
CLB has an ever higher P/E ratio than SLB, but it’s a somewhat different kind of company.
“The efficient-market hypothesis may be the foremost piece of B.S. ever promulgated in any area of human knowledge!”
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