1 Cheap Energy Stock That Sank From $14 to $4 in March

Vermilion’s stock value dropped by 70% last month. Given the current situation faced by the oil sector and transportation industry, the stock may take ages to recover.

| More on:
A stock price graph showing declines

Image source: Getty Images.

The Canadian S&P/TSX Composite dropped more than 30% in March while witnessing the largest one-day drop of 12% of the last 80 years.

The market crashed with a dual blow of the oil crisis and the COVID-19 pandemic. The crash has set off a prolonged bear market phase, with stalled economic activity all around the world.

Vermilion Energy (TSX:VET)(NYSE:VET) is among the many casualties of this market crash. This Calgary-based oil and gas production company has lost around 70% of its stock price in March alone.

Let’s try to understand what happened to Vermilion stock in the fateful month of March, and what the future holds for this company and its shareholders.

Dividend cut proves to be consequential

As if the oil war between the KSA and Russia was not enough, the worldwide lockdowns have crashed the demand of oil and gas to non-existent levels. The compounded effect of this market development pushed the prices of different crude oil variants into a free fall.

This extreme imbalance of demand and supply forced Vermilion to shut down its crude oil production. However, the shutdown of production was not enough, and OPEC hadn’t yet announced the potential production cut either.

However, stopping crude production was not enough to sustain the quickly aggravating economic crisis. Therefore, Vermilion decided to cut its dividend yield in half to take some pressure off this fiscal bind.

This decision led to a whopping 16% fall in its stock price in a single day. Vermilion has experienced several TSX spikes post-2014 oil depression. However, this was the sharpest drop in its entire history since its IPO. As of now, Vermilion stock is hovering around $5 and may not go beyond that for a long time.

Prospects of Vermilion stock

Even when the overall oil market was not doing well, Vermilion was considered a decent stock due to its high dividend yield. However, this has changed with a significant dividend cut. Also, the unprecedented nature of the current events may leave long-lasting effects on the stock. For example, oil prices have never plunged into negative figures before.

All of this has made it difficult for already cash-starving Vermilion to earn investors’ trust back. Right now, the stock is trading at 28 times its projected earnings for the next 12 months with an estimated potential drop of 40.7% in sales this year. The projected sales for 2021 and 2022 are not encouraging either.

Conclusion

The energy sector has entered a gloomy phase for the foreseeable future. It may take years for oil and gas companies to get back to their pre-2020 positions.

The same goes for Vermilion. If you want to buy the dip with a long-term horizon in mind, you can consider Vermilion. If you own VET, it might be better to wait and let COVID-19 play out before selling Vermilion stock.

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 Justin Liew has no position in the companies mentioned.  

More on Energy Stocks

The sun sets behind a high voltage telecom tower.
Energy Stocks

2 Utilities Stocks With Sought-After Stability

Here's why Fortis and Hydro One are two top utilities stocks long-term investors may want to consider right now.

Read more »

Choose a path
Energy Stocks

Algonquin Power Stock: A Smart Investment or a Value Trap?

Does APQ stock have more surprises for investors like last year?

Read more »

Oil pumps against sunset
Energy Stocks

Canadian Energy Stocks: Here’s Your Best Bet in February 2023

Want to bet on energy stocks in 2023? Try this Canadian stock for solid income and growth.

Read more »

a person watches a downward arrow crash through the floor
Energy Stocks

Why ARC Resources Stock Plunged 17% in January 2023

Should you buy ARC Resources stock now?

Read more »

oil tank at night
Energy Stocks

Is CNQ Stock a Buy in February 2023?

Canadian Natural Resources stock has many things going for it, including its strong dividend history, as well as cash flow…

Read more »

tsx today
Energy Stocks

TSX Today: What to Watch for in Stocks on Thursday, February 2

More corporate earnings reports could give further direction to TSX stocks today.

Read more »

oil and gas pipeline
Energy Stocks

Better Buy: Suncor Stock or Enbridge?

Amid the favourable environment, would you be better off investing in ENB or SU energy stock right now?

Read more »

Electric car being charged
Energy Stocks

Your Play to Get in on the 2023 EV Boom

Here's why Magna International may be the best way for Canadian investors to ride the EV boom.

Read more »