One of the top small-cap stocks that’s recently found a spot on my watch list is Pulse Seismic (TSX:PSD). Shares of this little-known seismic data systems provider have been on a steady ascent higher, with shares trading right around the $4 level at the time of writing.
Just a year ago, investors could have picked up shares of Pulse Seismic stock for around $2 apiece, so that’s a big move. And going back to 2021, this is a stock that traded below $1 per share.
So, patient investors have clearly won. But given the rather parabolic shape of the chart above, some investors may certainly be right to be skeptical of whether this growth stock has more lead left in its pencil.
Let’s dive into why I think the answer to this question is yes.
Energy sector growth matters
Pulse Seismic’s core business revolves around providing its two and three-dimensional seismic data models to energy exploration companies looking for the latest oil sands or natural gas finds in Canada’s resource-rich areas. In times when energy prices are surging (or at least relatively stable at elevated levels, which they’ve been for some time), it can be boom time for companies like Pulse Seismic.
The thing is, with more attention being focused on the energy independence discussion in North America, there’s reason to believe Pulse Seismic’s growth can continue.
Just how viable has this company’s growth been? Well, for the first half of this year, Pulse reported an absolutely eye-watering revenue growth rate of more than 170%. That’s hard to disagree with, and makes the company’s recent share price surge seem conservative, if that’s even possible.
A valuation story worth exploring
One of the positive side effects of such strong growth is investors now have the opportunity to pick up shares of a company growing its revenue at a 170% clip for less than 10 times trailing earnings.
That’s almost unheard of.
So, Pulse Seismic is, to me, a value stock just as much as it is a growth stock.
I’d discount the company’s recent growth for a few reasons, and it appears the market is as well. No one knows how exploration activity will evolve over time, and this is a sector as a whole that’s known for its volatility.
But for now at least, this is a stock that’s undervalued in my books relative to its potential.
