Shares of Liquefied Natural Gas Ltd (ASX: LNG) ("LNGL" or "the company") have been smashed today, crumbling 11.7% to $3.11.
Liquefied Natural Gas was the market's most explosive stock during the first half of 2014 but has taken investors on a rollercoaster ride ever since. The stock has now fallen 25.8% since peaking at $4.19 a week ago, and 37.8% since early May.
The most recent price swing seems to be something of an overreaction. LNGL recently announced that its wholly owned subsidiary, Magnolia LNG, has signed a legally binding agreement with Meridian LNG Holdings Corp for firm capacity rights for 2 million tonnes per annum (Mtpa) of LNG at its proposed Magnolia LNG facility in North America.
This is something of a milestone for the company and improves its ability to raise the debt necessary to fund its expansion projects.
In an announcement to the market on Thursday, Magnolia LNG reported: "We have been working with Meridian LNG since late 2013 and are delighted to have completed our first binding liquefaction tolling agreement. This is another significant milestone for Magnolia toward fully subscribing our 8 mtpa project."
The selloff has likely occurred as a result of when LNGL expects financial close for the Magnolia project to occur. In its statement, it said that financial close is planned for the first quarter of 2016, which may be later than what investors had hoped for.
As previously mentioned, Liquefied Natural Gas's shares have skyrocketed over the last 18 months (despite the recent selloff, it's still up 954% since January 2014) with investors clearly recognising the group's long-term potential.
In saying that, the group is yet to produce any meaningful sales or cash flow and with a market capitalisation already exceeding $1.5 billion, it's by no means a cheap or risk-free investment prospect. Although the selloff has arguably been overdone, investors may want to hold off from buying the shares just yet, at least until more clarity is provided in the future.
