The S&P/TSX Composite Energy Sector Index slumped (+6.3%) in 2023 but rewarded investors with solid gains in 2021, 2022, and 2024. Its calendar year performances were +48.87%, +30.27%, and +23.97%, respectively. Moreover, energy companies dominated the TSX30 List last year, the flagship program for Canadaâs top 30 performing stocks.
Thus far in 2025, the energy sector has suffered a downturn due to several factors, notably U.S. tariffs on Canadian energy imports. CES Energy Solutions (TSX: CEU), in particular, is down nearly 29% year to date. However, this dynamic energy constituent remains a solid pick if you want a buy-and-hold stock.
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High-growth stock
CES Energy Solutions ranked fourth in the TSX30 List in 2024. This $1.54 billion company operates in the oil and gas industry. It provides technically advanced and mission-critical consumable chemical solutions that industry players use throughout the life cycle of the oilfield.
The asset-light business model, solid free cash flow (FCF) generation, and strong earnings growth attract investors. As of this writing, the share price is only $6.96, down from $9.80 at year-end 2024. Fortunately, the modest but safe 2.56% dividend yield (a 17.21% payout ratio) compensates for the temporary weakness of the small-cap stock.
Still, CEU is a profitable option, given its +222.19% return over three years. Had you invested $5,000 three years ago, your money would be $17,142.86 today. Note that the total return in five years is +603.25%.
Strong earnings growth
The strong earnings growth stems from the solid financial momentum and accelerating revenue growth in the last eight quarters. According to management, the asset-light business model and CESâs counter-cyclical balance sheet generate significant FCF through all points of the cycle. The growing, recurring production chemical revenue stream adds stability and enhances the companyâs financial profile.
In the first quarter (Q1) of 2025, revenue increased 7% year over year to $632.4 million, marking a new record quarterly revenue. However, net income declined 19.1% to $44.1 million versus Q1 2024. At the quarterâs end, the working capital surplus reached $686.8 million compared to $681.1 million at Q4 2024. CESâs current market share in Canada and the U.S. are 42% and 23%, respectively.
CES expects energy industry fundamentals to continue supporting critical drilling and production activity for oil and natural gas, notwithstanding depressed global inventories. Additionally, there is cautious optimism about market conditions, as well as suitable pricing, due to the scarcity of high-quality drilling locations.
Production chemistry
Risks and challenges to the business include West Texas Intermediate oil price volatility and supply chain disruptions. The former may affect revenue and profitability, while the latter could hinder product delivery and service efficiency.
Nevertheless, CES CEO Ken Zinger said, âOur business has never been stronger or healthier than it is today. We believe we have more in front of us than behind us.â He noted the companyâs robust position and underscored its growth prospects. âWe continue to believe we are the clear number one provider of production chemistry to the Canadian conventional market,â Zinger added. Â
âStrong buyâ ratingÂ
On July 3, 2025, National Bank of Canada upgraded its rating for CES Energy Solutions from sector perform to outperform. According to the bank, the leadership position in the fluids space and exposure to increasing demand for consumable fluids should protect earnings. NA analysts said the recent price drop is an attractive buying opportunity. Their price target is $10.50 — a 50.9% increase from its current share price.
