Badger Daylighting Ltd. (TSX:BAD) has had a wild ride over the past several years. After its monster run-up in 2013, the company’s stock has been up and down like a yo-yo. Sure, the stock did run ahead of itself. And the bears are still negative on the stock, with a large short position on the company. But after a few years of bouncing around, has the stock consolidated to the point where its growth has caught up to where the stock can finally begin to make a move upwards once again?
To be fair to the company, investors who had shares in the company prior to 2013 have still done very well. The stock price has more than doubled since then, providing those investors with excellent returns while paying out a dividend the entire time. And on top of the capital appreciation, the company continues to grow stronger as its business develops.
The company is involved in the use of non-destructive Badger Hydrovac for a variety of excavation services. Its customers operate in a number of industries such as the energy, transportation, and construction sectors. It was Badger’s focus on the energy sector that contributed to the stock’s fall when oil went out of favour, but the company has been working on diversifying its business more heavily in the construction and infrastructure sector. The company operates throughout Canada and the United States and continues to grow in both those regions.
Badger has continued to grow its business over the years even as the share price has been range bound. In Q2 2018, Badger grew its revenues by 19% year over year. A large portion of this was due to the growth in its U.S. business operations, which grew 28% over that timeframe. Even its more mature Canadian business grew a solid 8% over that period, demonstrating that the business still has growth ahead of it.
At present, Badger pays a reasonable dividend of around 2%. The dividend has been growing over the past few years, a positive move in the right direction. The dividend appears to be relatively safe at present as long as the company continues to grow its financial strength. Badger has a much stronger balance sheet than it had when the stock price first collapsed a few years ago. Its debt has shrunk since that time and its cash levels have grown, leaving the company in a better position to continue raising the dividend.
But even with these improving fundamentals, it can be difficult for investors to make a move on a stock that fell so quickly from its highs and remains trading within a range. Until the growth and valuation become more compelling, it may be some time before the stock truly begins to trend upwards.
That said, it’s unlikely that investors will be hurt by the stock as they wait for other investors to take notice of the improving fundamentals. The company’s growth, especially in the U.S., should add to Badger’s appeal over time. And if it continues to grow the payout, dividend-focused investors will also begin to take note of the company as an income play.
Badger is beginning to look quite attractive as its fundamentals continue to make the range bound share price look more attractive. While not huge, its dividend appears to be growing with the company’s increasing profitability. Its balance sheet also is getting stronger and its debt decreasing continuously. For these reasons, Badger is a much more compelling stock than it was a couple of years ago.
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 Kris Knutson has no position in any of the stocks mentioned.