ALERT: Double Your Money With This Cheap Value Stock

At just $23 cents per share, Athabasca Oil Corporation (TSX:ATH) looks ridiculously cheap. What is the market missing here?

| More on:
consider the options

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Athabasca Oil (TSX:ATH) is a liquids weighted intermediate producer with exposure to Canada’s most active resource plays (Montney, Duvernay, Oil Sands). The company offers investors excellent exposure to improving oil prices and is focused on maximizing profitability through prudent capital spending.

Athabasca Oil’s light oil and thermal oil operations have significant potential to be very valuable. The company’s light oil operations at Placid and Duvernay are rich in liquids and designed to produce high margin returns. In comparison, the company’s thermal oil business is expected to continue to experience a low decline in production rates.

The company has lost money for investors over the last few years, giving rise to a negative price to earnings ratio. However, Athabasca Oil’s valuation is in deep value territory with a price to book ratio of 0.17 and market capitalization of 116 million. Debt is high at Athabasca Oil as evidenced by a debt to equity ratio of just 0.96. Performance metrics are below average with an operating margin of (12.40)% and a return on equity of (65.88)%.

The company has undertaken an operational strategy that is intended to ensure that light oil and thermal oil businesses are financially robust and competitive, with exceptional future growth potential. Athabasca Oil’s focus on  generating strong margins and free cash flow to maximize shareholder value has served it well during the recent economic crisis caused by the novel coronavirus.

Low prices have seriously hurt the company in recent times. Despite this, Athabasca Oil has emphasized financial sustainability, maintained strong liquidity and adopted a flexible capital allocation strategy. The company has cut expenses significantly and is doing a good job navigating uncertain times.

Athabasca Oil produced about 40,000 barrels of oil per day with a 86% weighting in liquids. Operational performance has been recently strong due to a significantly improved North American oil pricing environment. Positive contributions from both light oil and thermal oil have also helped financial results.

Athabasca Oil has also been selling assets aggressively to reduce debt and to strengthen the company’s balance sheet. The company recently sold Leismer infrastructure assets for $265 million of cash proceeds. These deleveraging efforts have been successful, resulting in a strong balance sheet position with funding capacity of $460 million including $27o million of cash and cash equivalents.

Liquidity is particularly strong at Athabasca Oil. The company has over $125 million of available credit and letter of credit facilities and a $60.5 million of undiscounted capital carry balance. Athabasca Oil’s light oil division has seen a significant ramp-up in production with an operating netback of $30 per barrel of oil equivalent driven by a high liquids weighting of 54% and low lifting costs.

The company has been prudently allocating capital in recent times. Six wells were drilled, eight wells were completed and four wells were placed into production in the most recent quarter. In addition, the company’s thermal oil metrics were in-line with government mandated curtailments. Recent operations have had a tailwind due to strong bitumen prices.

At just 23 cents a share, long-term investors in Athabasca Oil are likely to be richly rewarded.

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 Nikhil Kumar has no position in any of the stocks mentioned.

More on Investing

Man holding magnifying glass over a document
Investing

3 Heavily Shorted TSX Stocks to Watch This Summer

Canadians should monitor heavily shorted TSX stocks like Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS) in this bear market.

Read more »

Airport and plane
Investing

3 TSX Stocks Set to Take Off With Summer Travel

Canadians should direct their attention to the travel industry and snatch up TSX stocks like Air Canada (TSX:AC) and others…

Read more »

Investing

Young Investors: 3 Canadian Stocks You Can Trust as Inflation Rises

Inflation has soared to new heights, which should spur young investors to snatch up Canadian stocks like Empire Company Ltd.…

Read more »

analyze data
Cryptocurrency

2 Tech Stocks That Benefit From the Decline of Crypto

Crypto's bear market creates opportunities for traditional rivals like Lightspeed (TSX:LSPD)(NYSE:LSPD).

Read more »

Growing plant shoots on coins
Investing

Why This Canadian Growth Stock Could Double Next Thursday

This growth stock is set to soar if market recovery continues and what analysts expect from the company continues.

Read more »

Glass piggy bank
Investing

Market Correction: Boost Your Retirement Fund With These 2 Stocks

The correction in top TSX stocks presents a solid opportunity for investors with long-term financial goals to buy shares of…

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Parents: Here’s Every Credit and Benefit You Can Claim From the CRA

Parents have it hard already, so make sure the CRA is doing everything for you by dishing out payments you're…

Read more »

edit Colleagues chat over ketchup chips
Dividend Stocks

3 Canadian Dividend Stocks to Buy and Hold for Life

These dividend-paying stocks have solid earnings base to support their payouts for decades.

Read more »