Introduction
There are very few businesses that actually inspire me to quote Benjamin Graham who said:
“A stock is not just a ticker symbol; it is an ownership interest in an actual business with an underlying value that does not depend on its share price.”
We are currently in times when businesses are transitioning from age-old methods to newer, more sustainable practices. Remember this as we dive into the analysis of Athabasca Oil – an exploration and production company in Canada, which engages in the development of thermal and light oil assets.
Whether you’re a seasoned investor or new to the market, our analysis aims to provide you with the insights you need to determine if Athabasca Oil is the right addition to your portfolio. Join us as we explore the opportunities and challenges that lie ahead for this promising energy player.
Company Overview
Athabasca Oil is an exploration and production company with two operating oil sands SAGD projects and a large resource base of exploration areas in the Athabasca region of northeastern Alberta. Founded back in 2006 by Paul Atkinson, the company is headquartered in Calgary, Canada.
The firm produces liquids-weighted intermediate and is a developer of Canada’s premier resource plays (Duvernay and Oil Sands). It operates with the policy to maximize cash flow per share by investing in high-margin projects and capital initiatives. Currently, they are working on transitioning from the traditional business trade in the energy sector to a sustainable resource development model.
Financial Performance
Now that we have discussed brief details and the history of the company, it’s time to jump into the world of numbers. So, grab your pens and paper, and let’s find out if Athabasca could be your partner to financial success while being an energy partner.
Stock Price Movement
A quick glance at the stock price chart of the company shows that the company is currently in a Bull-Run. A year-on-year analysis of the stock’s movement shows that the company had some difficult times during the COVID-19 pandemic as the chart shows a stagnant picture between 2020-2021.
After 2021, since economies have been facing an energy crisis around the globe. This crisis has spiked the prices in all the oil and gas energy sectors which definitely worked positively for Athabasca Oil Corp as the company’s stock jumped a whopping 583% from 2021 to 2022.
The best part about Athabasca Oil Corp’s trajectory is that it has remained positive in the following years with the price growth being 103% and 105% in 2022-2023 and 2023-2024 respectively. The past six months have also been relatively stable with the growth being at 30% with the current trading price sitting at CAD 5.40. Analysts have credited the company’s fundamentals for an explosive overall growth of 980% in the past five years.
Financial Metrics
Revenue:
Analyzing the revenue figures, the numbers are consistent with the Athabasca’s overall performance and the stock market. Athabasca Oil Corporation reported lowest revenue since 2019 in the year 2020 with the revenue figure at 458.56 million dollars. This figure represented a 44.13% Y/Y decrease in the revenue of the company. Much of this can be attributed to the instability pushed by the COVID-19 pandemic.
In years since 2020, the revenue of the company has not only shown massive recovery but also has been reporting record revenues. In 2021, the company reported a revenue of 978.61 million dollars which was a 113% Y/Y change. Moving on in 2022, the corporation reported an even higher revenue of 1.35 billion dollars which was a massive figure and grabbed a lot of attention. In 2023, the company’s revenue figures fell to 1.20 billion dollars.
Net Income:
As with every other business around the world, Athabasca couldn’t dodge the drastic impact of the pandemic and the net income of the company took a massive hit. In 2020, the company reported a loss of 657 million dollars representing a 366% decline in the Y/Y change in net income. The good news is, the company’s income recovered in the following years with 457 million and 572 million dollars net income reported in 2021 and 2022 respectively. Whereas, in 2023 the company once again reported a net loss of 51 million dollars after being profitable for 2 years.
Cash Flow:
Analyzing the cash flow chart, we can see that the trend is different compared to the other financial metrics. For instance, in 2020, Athabasca Oil Corp reported a negative cash flow amount of 89.19 million dollars, which is the lowest in the past 5 years. In the following years, the company reported a better cash flow outlook with 164% and 671% increase in 2021 and 2023. In both these years, a major chunk of cash came in through investing operations apart from their operational cash flows.
Market Potential and Recent News
Considering the overall market scenario, we can conclude that the energy market is on the boom. The looming crisis fueled by Geopolitical instability in various regions, OPEC countries curbing supply and economies facing hardships has significantly impacted the supply which has had a direct impact on the prices of commodities in the energy sector.
Furthermore, the model that Athabasca Oil Corp. is following has definitely impacted its overall position in the market, and with the stock price’s positive trajectory, the future of the company looks very bright. In addition, the company’s interest in a cash flow maximizing policy through capital initiatives gives it an edge in the industry which will pay back in the future.
Investors Perspective
From an investor’s perspective, the Athabasca Oil Corp’s stock presents a great opportunity as the analysts predict the average 12-month price target to be at 6.31 CAD, representing a potential upside of 16.85%. Furthermore, based on the analysis, Athabasca Oil has a ROCE of 14%. In absolute terms, that’s a satisfactory return, but compared to the Oil and Gas industry average of 8.5% it’s much better, demonstrating a competitive edge.
All these figures present a very bright future for the company and if you are confused, I’d like to remind you of the words of Benjamin Graham who said, “The risks from poor selection of investments are large. The rewards from good selection are even larger.” This statement from Benjamin combined with equal amounts of recommendations to buy, hold, underperform, and sell shows that no one can really predict how this stock will perform.
Conclusion
Athabasca Oil Corporation is a niched stock providing exposure to the Oil and Gas Industry. The industry is renowned for its high barriers to entry and ability to pass on increase in cost inputs (inflation) to its customers which is evident by the firm’s rising revenue.
The company has been consistently investing in capital initiatives and sustainable resource development programs which demonstrates growth. This growth potential shows that the firm is prime to lose its penny stock status and transition into a growth stock in the near future which could result in substantial profits for investors in the stock.
On the flipside, it is noteworthy to mention that success of these capital projects is imperative for continued success of the company. Moreover, in a niched business like this adverse global commodity price movements directly impact the stock price, and this affect would be magnified in the case of Athabasca as it is still a penny stock and hence highly volatile.
Athabasca Oil presents a great opportunity as a penny stock. However, the consensus of the analysts cannot reach a mutual understanding and there are a lot of speculations surrounding this stock. Currently, the recommendations range from strong buy to sell, which shows mixed opinions by analysts. However, the 12-month highest price target from the analyst still stands at 7 dollars presenting an upside of 29%.
To conclude, the stock presents a High-Risk, High-Reward situation and moves in either direction could be substantial. Hence, if you do choose to invest in the stock, we would recommend not putting all your eggs in one basket and diversifying your portfolio effectively.
Article By: Hamza Bashir. An avid investor and strategic consultant with expertise in stock analysis. He has been investing, analyzing, and writing articles on the stock, cryptocurrency, real-estate, and commodities market for over 3 years.