CARBO Ceramics Showing Several Signs Of A Good Short Story

CARBO Ceramics Inc. CRR shares are down 5.6 percent on Friday as traders are circulating a short thesis on the company that calls into question the Carbo’s aggressive cash burn ad guidance.

Cash Burn

CARBO reportedly burned $13 million in cash in the fourth quarter and expects its Q1 burn rate to be even higher. As of last quarter, the company had only $91 million in cash on its books.

CARBO has said it expects to be EBITDA-positive by the end of 2017. The core of CARBO’s business is ceramic proppant used by oil & gas drillers. However, according to the short chatter, while many drillers used to use 100 percent ceramic wells, they can now achieve the same results from raw sand at a fraction of the cost.

Permian Basin Strength

At the same time, completion-related service providers are reporting strength in the Permian Basin, CARBO has reported no increase in Permian demand.

The company reported selling 96 million pounds of ceramic in Q4, but it may choose not report Q1 ceramic sales. The short thesis contains speculation that the reason why the company may not report Q1 ceramic sales is because a Q1 sale of the company’s expensive Kryptosphere product may help drive quarterly revenue in line with Q4 while also masking an overall decline in ceramic demand.

According to shortsqueeze.com, CARBO already has an extremely high short percent of float of 32.1 percent.