A popular piece of investing advice, to never catch a falling knife, is only partially true, failing to account for how the stock market’s efficient, long-term reflection of value in share prices often turns irrational over the short term and punishes quality stocks into bargain-bin territory.
A stock that fits this description is Stampede Drilling (TSXV:SDI), market capitalization C$31.65 million, a contract oil and gas driller in Western Canada sitting at a 67 per cent loss from its five-year high, despite operations that have proven their ability to deliver sustained, profitable growth.
Stampede operates a fleet 18 telescopic double drilling rigs and 1 high-spec triple drilling rig well-suited to geology in the Western Canadian Sedimentary Basin, having grown through numerous strategic acquisitions since incorporating in 2011.
Supported by a board and management team well versed in traversing fluctuations in energy demand, the company has delivered positive net income over the past three fiscal years, generating C$2.85 million in 2021, C$8.21 million in 2022 and C$10.55 million in 2023, paired with revenue of C$32.16 million, C$66.88 million and C$85.96 million, respectively.
Despite this impressive run, an accumulation in geopolitical tensions with Russia, Iran and OPEC nations over the past few years has increased oil market volatility, likely resulting in reduced revenue and net income for Stampede in 2024 year-over-year.
A total of 13 rigs were active as of Q3 2024 ended September 30, 2024, generating net income of C$1.78 million, with management optimistic about continued momentum through the remainder of the year. This remains to be seen, contingent on 2024 financial results slated for sometime in March.
Stampede’s income statements will also face the tailwind of President Trump’s ongoing tariffs on Chinese goods, plus those contemplated on Canadian and Mexican goods, though management sees a strong offsetting force in increased tidewater access for Canadian producers through LNG Canada and the Trans Mountain pipeline expansion in 2025, paving the way for redirecting resources away from the U.S.
While oil and gas demand are unavoidably tied to the macro worries of the day, from a global perspective, Canada remains the world’s fourth-largest oil producer and the fifth-largest for natural gas, making it a dominant player on the global stage, granting a competitive advantage to picks-and-shovels players like Stampede Drilling that can apply their expertise to capitalize on explorers with prospective resources best positioned to thrive over the long term.
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(Top image, generated by AI: Adobe Stock)
