Sometimes the best investment decisions feel the most uncomfortable at first. Thatâs often the case with high-quality stocks that are trading at a discount. The price is down, but the business isnât. That gap between perception and reality is where long-term investors often make their biggest gains.
Currently, Iâve got my eye on one such Canadian stock as it has slipped about 26% from its recent peak high, yet continues to grow revenue, pay dividends to shareholders, and post healthy profits. Letâs take a closer look at an undervalued Canadian stock you can buy and hold for decades.
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Why this stock deserves a spot in your portfolio
The business that fits this description is CES Energy Solutions (TSX: CEU), which continues to post solid growth even as the stock trades well below its highs. This Calgary-based company mainly operates across major energy basins in Canada and the United States. From drilling fluids to production chemicals, it helps energy producers improve performance, reduce downtime, and boost returns.
At the time of writing, CES stock is trading at $7.49 per share with a market cap of $1.6 billion and an annualized dividend yield of 2.3%. While the stock is down roughly 26% from its 52-week high, itâs still up nearly 221% over the past three years and a staggering 600% over the past five years, making it one of the most durable performers in the Canadian energy sector.
The pullback might not be tied to the business
The recent weakness in CES shares hasnât come from anything broken inside the company. In fact, in the first quarter of 2025, the company posted record revenue of $632.4 million with a 7% increase YoY (year over year) and 4% from the previous quarter. It also posted $99.9 million in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), with a healthy margin of 15.8%.
Although a shift in product mix and some input cost pressures weighed on its margins in the latest quarter, they were mostly short-term fluctuations. Nevertheless, CES still produced $77.8 million in funds flow from operations, up from both the previous quarter and the same quarter last year.
Strong foundation and room to grow
From a balance sheet perspective, CES remains in a solid position. It finished the March quarter with a working capital surplus of $686.8 million, which exceeds its total debt of $469.2 million.
Whatâs even more encouraging is that the company continues to produce solid free cash flow, even during a time of elevated capital expenditure and working capital requirements. It produced $25.6 million in free cash flow during the first quarter alone, despite higher investments to support record revenue levels.
Looking ahead, CES plans to spend around $80 million in capital expenditures this year, with a balanced focus on maintenance and expansion. So, while the short-term traders may be focusing on its recent dip, long-term investors may want to see this dip in CES stock as an opportunity, as itâs still growing, still generating cash, and still returning capital to shareholders.
