Will Arch Coal Inflict Unbearable Pain on Investors?

With shares of Arch Coal Inc. (NYSE:ACI) trading at around $5.07, is ACI an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

That’s an ironic question in the title, considering the fact that Arch Coal has already inflicted unbearable pain on investors. However, it’s not where you’ve been, it’s where you’re going, right?

It’s definitely true that Arch Coal had some blunders over the past few years. After figuring out that Central Appalachia wasn’t the place to be and focusing more on the West, Arch Coal acquired International Coal Group, which led to a refocus on Central Appalachia. This increased debt limited Arch Coal’s ability to maneuver, and now it’s stuck in a situation where it must deleverage prior to being able to grow again. This means more short-term pain. Will there be better times ahead? And considering the weakness in the industry over the past few years, would Arch Coal have been stuck anyway? The answer to the latter question is most likely yes.

The good news going forward is that Arch Coal is still strong in the Powder River Basin. Arch Coal is also interested in divesting weak assets. Other positives include George Soros initiating a position and the fact that the stock was in very dangerous territory once before in the early 2000s, and it ended up climbing to all-time highs within eight years. Remember that this is a cyclical industry, and when the industry is hurting, you will only read about the negatives.

Let’s take a look at some important numbers prior to forming an opinion on this stock…