Oil and Index Change Upend Denbury Resources Inc.s Stock in March

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: March won't be a month that Denbury Resources's investors will want to remember. The company's stock sold off again thanks to weak oil prices. However, that wasn't the only thing that fueled last month's sell-off, as the company learned that it was being removed from the S&P 500 due to the fact that its market cap had been cut in half during the past year. These two events left investors with few reasons to buy, which is why the stock dropped 12.2% in March.

DNR data by YCharts.

So what: In the grand scheme of things, it really doesn't matter what index a stock is in. However, there is some prestige to being in the S&P 500, which is a key market benchmark. Further, many funds try to mimic that index; these funds were forced to sell Denbury's stock when it was booted out. So, by being dumped by that index, the company lost some core investors.

Now what: What really matters for Denbury is its ability to generate cash flow from its oil production. The company needs to prove it can do so at weaker oil prices by cutting out unnecessary costs, and finding ways to meaningfully grow cash flow even as it keeps its production flat. If it can accomplish this goal, then it's possible that Denbury could one day win back its spot in the S&P 500 -- though it could use some help from higher oil prices, too.

The article Oil and Index Change Upend Denbury Resources Inc.s Stock in March originally appeared on Fool.com.

Matt DiLallo owns shares of Denbury Resources. The Motley Fool owns shares of Denbury Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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