Energy stocks have always had a bit of a wild streak. Prices rise and fall with every geopolitical event, Organization of Petroleum Exporting Countries (OPEC+) decision, or shift in consumer demand. But amidst that volatility, smart investors often find real gems, companies with strong fundamentals trading at bargain prices. Right now, Baytex Energy (TSX:BTE) fits that description. It’s down 38% year-to-date at writing, but with a solid long-term outlook, this may be the perfect time to buy and hold for the decades ahead.
About Baytex
Baytex is a Canadian oil and gas company based in Calgary. It produces crude oil and natural gas across key regions including the Western Canadian Sedimentary Basin and Eagle Ford in Texas. This dual exposure gives it a nice mix of conventional and shale oil production. It’s not one of the biggest names on the TSX, but it has spent the last few years cutting costs, boosting production, and returning capital to shareholders.
Baytex reported its first quarter 2025 results on April 25, and the numbers were solid. Revenue came in at $791.2 million, up from $775 million a year earlier. Net income was $70 million or $0.09 per share. While that’s down from the $113.7 million reported in Q1 2024, the dip was largely due to foreign exchange and hedging losses, not operational issues. What really stood out was the energy stock’s free cash flow, which came in at $53 million. That’s real money which can be used to pay down debt, buy back shares, or reward shareholders with dividends.
Staying strong
Production during the quarter averaged 144,194 barrels of oil equivalent per day, a 2% increase year over year. About 84% of that was oil and natural gas liquids, which fetch higher prices than dry gas. Baytex’s break-even price is below US$50 per barrel, giving it a wide margin of safety with oil currently trading closer to US$80. That makes its production profitable even in a downturn, which is something long-term investors should love.
Baytex has also been aggressively reducing debt, which is key in a cyclical industry. As of March 31, its net debt was approximately $1.3 billion. That’s down sharply from over $2 billion just a few years ago. The energy stock wants to reduce that even further and has committed to returning 50% of its excess free cash flow to shareholders through buybacks and dividends. That means investors can count on both stability and growing income as long as oil prices remain supportive.
Cash while you wait
In Q1, Baytex repurchased 3.7 million shares for $13 million and paid a dividend of $0.0225 per share. That’s not a huge yield, but it’s a sign of a shareholder-friendly strategy. And with free cash flow projected to climb later this year, there’s room for increases ahead. In fact, here’s what a $7,000 investment would look like today.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | INVESTMENT TOTAL |
|---|---|---|---|---|---|---|
| BTE.TO | $2.97 | 2,356 | $0.09 | $212.04 | Quarterly | $6,999.32 |
What makes Baytex particularly interesting is its long-term potential. Energy demand isn’t going away. Even as the world transitions toward renewables, oil will still be needed for petrochemicals, aviation, heavy transport, and heating. Baytex doesn’t have to grow explosively to be a winner, it just has to keep operating efficiently, reducing debt, and returning cash to investors. If it does that, today’s share price could look like a serious bargain in hindsight.
Bottom line
There are always risks with energy stocks. Oil prices can fall fast, regulatory changes can impact operations, and Baytex has some U.S. exposure that adds currency risk. But the flip side is that this is a well-run, well-positioned company that’s trading at a valuation that makes little sense given the financials. A price-to-earnings ratio under 6 and price-to-cash flow ratio of about 2.8 are both lower than the industry average.
If you’re looking for a long-term energy stock to tuck away, Baytex Energy looks like a smart bet. It’s producing strong cash flow, paying a dividend, and buying back shares. And with its stock down 38%, you’re getting it at a steep discount.
