Small-cap value stocks, allocated according to your specific financial situation, are the holy grail when it comes to maximizing returns, because the momentum behind the market discovering that a company is cheaper and smaller than it should be can be monumental.
Pick your favorite small-cap investor, from Joel Greenblatt, to Ian Cassel, to Warren Buffett when he was first starting out, they are all prime examples, demonstrating that stock market bargains are hiding in plain sight, waiting for investors to reveal them like an autostereogram through thorough due diligence.
Colombian oil and gas producer Arrow Exploration (TSXV:AXL), market capitalization C$68.61 million, has built a demonstrable case for small-cap value over the past six quarters that merits analysis.
This content has been prepared as part of a partnership with Arrow Exploration Corp., and is intended for informational purposes only.
The company’s assets, producing from some of Colombia’s most active basins, feature high working interests and Brent-linked light oil pricing with low royalties, helping it to keep profitability front and centre.
Arrow posted solid interim financial results in Q2 2025, achieving average corporate production of 3,768 barrels of oil equivalent per day (boe/d), up by 48 per cent from 2,546 boe/d in Q2 2024, while drilling five new development wells. This output breaks down into:
- US$15.9 million of total oil and natural gas revenue, up by 5 per cent from US$15.1 million year-over-year (YoY).
- Realized corporate oil operating netback of US$27.36/bbl, with the company trading below it’s peer average enterprise value-to-EBITDA ratio, according to the June 2025 investor presentation.
- Adjusted EBITDA of US$6.26 million, down from US$8.8 million YoY.
- Year-to-date (YTD) operating cashflow of US$13.9 million, down from US$18.9 million YoY.
- YTD net income of US$1.7 million, up from US$1.2 million YoY.
- Cash position of US$13.2 million. Liquidity was further enhanced by a two-year up to US$35 million crude prepayment agreement with an integrated energy major – which will become the exclusive marketer of all Arrow oil production – granting Arrow more flexibility to pivot between organic and inorganic growth as the market dictates.
Production currently stands ahead of the quarterly average at 4,200 boe/d, with two wells expected to enter production over the next two weeks and about US$26 million set aside for capital expenditures in H2 2025 across numerous prospects. The field team will be exploiting proven, probable and possible reserves that continue to expand exponentially beyond Arrow’s market capitalization, growing from US$206 million in 2022 to US$524 million in 2024, while retaining ample potential for expansion. A recent 3D seismic program on the Tapir block covering 100 square kilometres of known prospects previously limited to 2D data will inform the 2026 drilling program.
Arrow’s strong Q2 follows a recent stretch of profitability, including average net income of US$3.16 million from Q1 2024 to Q1 2025 and upward-trending revenue from US$14.4 million to US$19.51 million, respectively, driven by a combination of strategic data gathering, disciplined drilling and an overarching focus on balancing production growth with positive cash flow, as detailed by chief executive officer Marshall Abbott in the Q4 2024 news release.
With global oil production expected to remain relatively steady through 2050, despite electric vehicles’ promising growth, currently representing just over 20 per cent of global sales, according to the IEA, Arrow benefits from long-term demand to continue translating its robust reserves into tangible cash flow into 2026 and beyond.
The company’s profitability and promising future have arguably been reflected in the stock price from a long-term perspective, adding 390 per cent since 2020, coinciding with aforementioned reserve growth and revenue soaring by 13.8x from US$5.32 million in 2020 to US$73.73 million in 2024.
However, when the perspective changes to YoY, we see that investors have endured a 56.25 per cent loss, right in line with net income turning positive, suggesting that uncertainty about the sustainability of oil prices under the U.S.’s new tariff regime is keeping dry powder off the table.
Investor tentativeness is, in turn, tanking the small-cap stock into value territory, imbuing it with imminent re-rating potential for all to see and contrarians to take advantage of.
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