Is MRC Global Setting Up for a Breakdown? – August 9, 2021

MRC Global Inc. (MRC) distributes pipes, valves, fittings, and related products and services to the energy industry. Products are often used in the construction, maintenance, repair, and overhaul of equipment used in extreme operating conditions.

MRC is benefiting from a strong presence across several end markets. Last year, MRC renewed several multiple-year contracts and was able to secure new contracts. Right now, its focus is on expanding market share, which should drive performance in the long run.

While the company only had $63 million in cash as of the most recent quarter, this compares favorably with short-term debt of only $1 million. However, the company’s net profit margin is 0%. In terms of growth, sales are down 20.8% over the past year, but analysts forecast revenues to rise 22.1% year over year in the current quarter.

Based on its forward P/E of 10.63, the stock appears underpriced. Its price-to-sales ratio of 0.3 is also low. The stock had been trending up since September, but has shown bearish momentum since May as shown in the chart below.

Take a look at the 1-year chart of MRC below with the added notations:

While repeatedly running up against a trendline of resistance (red), MRC has also formed an important area of support at around $8 (green). The stock just hit that support last week and might now be making another run at the trendline.

At some point, either $8 or the resistance will break. A long trade could be entered on a break above the trendline with a protective stop placed under the point of entry. However, if it were to break support, lower prices are expected and a short trade could be entered.

Author: Christian Tharp, CMT