Hillcrest Energy Technologies. (CSE: HEAT)
From concept to commercialization, Hillcrest is investing in the development of energy solutions that will power a more sustainable and electrified future.
For a stock with intact fundamentals and profitability, buying on the dip can be as fortunate as buying a long-desired item on sale. On the Toronto Stock Exchange, a number of companies in the energy sector typically have strong earnings growth and solid market positions, setting the stock up for growth over the longer term. This energy stock below has generated a 500 per cent return on investment over the past five years, but the stock is down 18 per cent from 52-week high.
Advantage Energy (TSX:AAV) is a Canadian energy company focused on natural gas production with significant Montney assets in Alberta, and the Montney base has long been known for its high-quality, low-cost natural gas assets. The company has been focused on expanding its production capacity and improving efficiency since its inception, and the growing global demand for energy has set it up well for future growth.
Like many energy companies, Advantage Energy is subject to the volatility of commodity prices, particularly natural gas. This means that while there is the potential for strong returns, there is also a degree of risk associated with price volatility and market conditions. In addition, the company is addressing broader industry challenges related to environmental regulations and the transition to more sustainable energy sources, balancing growth potential with the risks inherent in the energy industry.
Earnings for the second quarter of 2024 showed a 28% increase in the company’s average production over the same period in 2023, largely attributable to the new assets acquired in the Lake Charles and Montney areas performing above expectations with production of 66,401 barrels of oil equivalent per day (boepd). In addition, management has managed to hedge a significant portion of its production despite the challenging natural gas market, which will provide the company with some financial stability going forward.
At the same time, however, the asset acquisitions have led to a sharp increase in net debt, which now rises to C$674.7 million, resulting in a net loss of C$12.1 million for the company in the second quarter. With average realised prices for natural gas and LNG also lower than the previous year, financial pressures from increased debt and volatile commodity prices are becoming apparent despite Advantage Energy’s strong production capabilities.
Advantage Energy could be a growth stock to consider if you’re looking for a company with a strong production base and ambitious expansion plans. The company has been steadily increasing its production, with a significant 28% increase in Q2 2024, and a forward price-to-earnings (P/E) ratio of 17.89 suggests that the market sees growth potential in its earnings. The company’s C$3.07 earnings per share is also solid considering its C$1.57 billion market capitalisation, and a return on equity (ROE) of 5.02% suggests that the company is able to earn a return on its investment, which is a good sign of potential growth.
Investors should be reminded that the company carries a significant amount of debt in excess of C$759 million. This leverage could pose a risk if market conditions become unfavourable. In addition, despite solid operating cash flows, the company has negative leveraged free cash flows. This suggests that the company may be somewhat stretched to fund its growth. Advantage Energy should be a growth stock to watch for investors who are willing to take some risk and are bullish on the long-term prospects of the energy sector.
