The Canadian stock market has been on an upward trajectory so far this year, supported by the overall resilience of the economy. The S&P TSX Composite Index has posted a solid 9.9% gain year-to-date, with several top-performing Canadian stocks leading the charge. However, the story is a bit different in the technology sector. The S&P TSX Capped Information Technology Index has climbed only 6% in the same period, lagging the broader benchmark. This suggests that while some tech stocks have surged, others remain undervalued and continue to trade at attractive valuations.
One such under-the-radar stock is Computer Modelling Group (TSX:CMG). Despite its strong fundamentals, CMG shares have declined by approximately 27.4% so far in 2025 and are down 44.5% over the past year. Yet, the long-term outlook for this software and consulting firm remains compelling, given its advanced modelling and simulation solutions for the energy sector.
What’s behind the decline in Computer Modelling Group stock?
As the complexity of energy assets grows, the need for precise simulation and forecasting tools becomes even more critical. CMG provides software for seismic interpretation, reservoir simulation, and production optimization, essential tools that help operators reduce risk, improve efficiency, and maximize resource recovery. Thus, the long-term demand for its tech and solutions remains solid.
However, short-term macroeconomic pressures have taken a toll. With oil prices softening, many energy companies, especially smaller and mid-sized players, are tightening their budgets. This has led to a slowdown in spending on new technology, which has impacted CMG’s recent sales performance and weighed on its share price.
The company had experienced encouraging growth through the acquisition of new customers, the expansion of relationships with existing ones, and its entry into the energy transition space. But that momentum has cooled in the current environment.
Another headwind has been the shifting landscape around carbon capture and storage (CCS). Initially boosted by favourable tax incentives from the U.S. Inflation Reduction Act, CCS activity saw a surge. However, more recently, that momentum has faded, and activity in the U.S. has slowed substantially, posing another short-term challenge for CMG.
CMG Stock is a solid long-term investment
Computer Modelling Group is navigating short-term headwinds, but for long-term investors, the current dip in its stock price could be a buying opportunity. The recent pullback in its share price has pushed valuations to attractive levels, offering a potential entry point for investors with a long-term view.
Despite near-term challenges, CMG’s core technology plays a key role in the energy sector, primarily in subsurface modelling and reservoir simulation. These areas remain integral to innovation and operational efficiency in the oil and gas industry. As industry budgets begin to stabilize and the focus shifts back to technological advancement, CMG is well-positioned to benefit.
Although macroeconomic pressures continue to weigh on its reservoir and production business, its recent acquisitions of Bluware and Sharp are expected to enhance its capabilities and broaden its market reach. Furthermore, its seismic solutions business is emerging as a promising growth engine, supported by early market adoption, a competitive edge with product differentiation, and improving sales momentum.
Financially, CMG is on solid footing. The company maintains a strong net cash position and continues to generate robust free cash flow, which helped it to self-fund its two recent acquisitions.
Looking ahead, CMG’s mid- to long-term outlook remains promising. Its existing solutions are deeply integrated into clients’ critical workflows, ensuring recurring demand. Combined with an ongoing focus on operational efficiency, this positions the company well for sustainable growth once current market conditions begin to improve.
