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Why it is Not Wise to Buy NOV Stock After a 23% Decline in 6 Months

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NOV Inc. (NOV - Free Report) stock has been under heavy selling pressure, currently down more than 29% from its 52-week high. In the past few months, the oil and gas equipment and services giant has been lagging behind its Oil and Energy sector and the Zacks Oil and Gas Mechanical and Equipment industry. The stock has also struggled to keep up with its peers, such as Kodiak Gas Services (KGS - Free Report) , Natural Gas Services Group (NGS - Free Report) and Oil States International (OIS - Free Report) .

 

Analyzing 6-Month Price Movement

Zacks Investment Research
Image Source: Zacks Investment Research

 

NOV has declined 22.5% in the past six months. There are several red flags that indicate caution. For now, it might be best for investors to hold off on buying the stock.

Here are the reasons -

NOV Disappoints in Q3

NOV reported adjusted earnings of 33 cents per share for the third quarter of 2024, missing the Zacks Consensus Estimate of 35 cents. The shortfall was primarily due to issues with execution, customer demand and pricing. On the other hand, the company's total revenues of $2.2 billion was below the expected figure, missing the consensus estimate by 2%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Challenges in North America

One of the biggest issues for NOV is its performance in North America, where it continues to face difficulties. Declining drilling activity, mainly caused by low natural gas prices and operators focusing on capital discipline, has hurt the company’s revenues in this region. Since North America is such an important market for NOV, these challenges limit the company’s growth potential, particularly in its short-cycle businesses like drill pipe sales and related services.

Struggles Across Different Business Segments

NOV's business segments have shown uneven performance in the third quarter. For instance, its Energy Products and Services segment saw a 3% year-over-year revenue decline, mostly because of lower demand for drill pipe and composite pipe systems. Additionally, the company's wind turbine installation vessel equipment segment has been facing a decline as projects near completion. This inconsistency in performance raises concerns about NOV’s ability to deliver steady growth moving forward.

Pressure on Margins

Despite year-over-year revenue growth in the third quarter, NOV was under pressure regarding its margins. For fourth-quarter 2024, the company expects flat or slightly lower margins due to adverse product mix shifts, such as a decline in high-margin wind turbine equipment sales being replaced by lower-margin shipments. The company has also revised its 2024 margin target downward, raising concerns about profitability in the near term.

Volatility in Customer Spending

Another factor to watch is the volatility in customer spending. NOV’s short-cycle businesses, like consumables and aftermarket services, are highly sensitive to fluctuations in customer spending. Already, NOV has noticed a drop in aftermarket orders and customers seem to be taking a more cautious approach. This behavior could weigh heavily on the company’s performance in 2025, particularly in the drilling equipment segment.

Declining EPS Estimates for NOV

A troubling sign for NOV’s future is the recent downward revision in its earnings estimates. In the past month, 2024 earnings estimates have fallen 3.8% from $1.59 per share to $1.53. What is even more concerning is the nearly 7% decline in 2025 earnings estimates. This further indicates that NOV’s stock could face continued pressure as analysts adjust their expectations.

Zacks Investment Research
Image Source: Zacks Investment Research

 

Final Word: Avoid NOV for Now

Given the ongoing challenges and declining earnings outlook, it may be best for potential investors to hold off on buying NOV stock for now. The company's weak performance across multiple segments, margin pressure and declining earnings estimates all point to a cautious outlook. Until there are clear signs of improvement, NOV may not be the best pick for your portfolio. NOV currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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