What: Peabody Energy Corporation's stock rose more than 125% in August, even as moribund coal prices lingered and financial distress in the coal industry pushed yet another major miner into bankruptcy.
So what? There's a couple of reasons to take note of this price action. First, Peabody released earnings in late July that show it's still struggling, but that it's managing to weather the storm in the coal market better than some of its peers that have careened into bankruptcy court. So that's a part of the backdrop for the massive uptick.
However, another reason, and perhaps more notable, is that Peabody was down 32% in July as fear of bankruptcy spread throughout the coal sector. In fact, through the end of July, the stock was down around 85% for the year. So Peabody's shares may just be bouncing back a little after a really tough stretch. And as investors realize that some coal miners have better prospects than others, the market is starting to differentiate between companies.
No what? The problem as an investor is to figure out whether this is a fluke, or if Peabody has hit bottom and is starting to recover. That answer is still very much dependent on coal prices. And that's not a positive sign. Coal continues to linger at low levels, feeling pressure from oversupply and slowing demand, and competing with low natural gas prices in the United States. So, no, coal isn't out of the woods yet, and neither is Peabody.
That means conservative investors should stay on the sidelines until there's a more pronounced uptrend in Peabody's business. Those with a more aggressive streak may find the giant global coal miner of interest, but just be aware of the risks still inherent in the business -- even if the market action suggests things may be turning the corner.
The article Why Peabody Energy Corporation's Stock Rocketed 125% Higher in August originally appeared on Fool.com.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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