Opportunity: Badger Daylighting Ltd. Shares Are Down Almost 20% Since Mid-April

Badger Daylighting Ltd. (TSX:BAD) benefits from the ups and gets hurt in the downs of the energy market.

| More on:
The Motley Fool

In recent history, Badger Daylighting Ltd. (TSX:BAD) has been negatively affected by its exposure to the oil and gas sector, which represented 50% of total revenues. But what is key about this company is that its hydrovac excavation services are in demand not only by the oil and gas industry, but also by petro-chemical plants, power plants, and other large industrial facilities in North America.

So, we should not view it as a direct play on the energy sector, although it certainly benefits from the ups and gets hurt in the downs of the energy market.

In 2016, Badger’s non-oil and gas revenue increased 21%, while oil and gas revenue decreased 34%. Importantly, revenues from sectors other than oil and gas accounted for 75% of total revenue versus 45% in 2013. The stock has reacted very favourably to this fact, and the shares performed well to a point that they were looking ahead of themselves. And while, as I wrote at that time, I believe that the company deserved a premium valuation, trading at over 44 times earnings, it was beginning to look excessive.

A caveat to this would be if, in fact, the oil and gas sector recovered in any meaningful way, the company’s earnings would rise very quickly and work to bring the multiple down without a meaningful decrease in the stock price.

And, as it happens, the company’s shares have two things working in their favour at this point. First of all, the shares have declined almost 20% since mid-April, so the valuation has improved. Second, the oil and gas sector is, in fact, looking like it is in the midst of a nice recovery; the likes of Pason Systems Inc. (TSX:PSI) have reported an 80% increase in rig activity in Canada in the first quarter of 2017, and that the company is experiencing increased revenue for the first time since the downturn a few years back.

Badger Daylighting is a well-run company with a history of high margins and strong returns on equity. At this point, it represents a good, diversified play in the industrial sector as it offers services for a broad range of infrastructure-related industries.

And since the stock was hit when the energy sector was collapsing, it follows that the shares should rise as the energy sector recovers.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has no position in any stocks mentioned. Pason Systems is a recommendation of Stock Advisor Canada and Dividend Investor Canada. Badger Daylighting is a recommendation of Stock Advisor Canada.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »