Crescent Point Energy (TSX:CPG)(NYSE:CPG) is an example of a stock that has crashed hard since the downturn in the oil and gas industry began. In five years, the stock has seen close to 90% of its value get wiped off as investors have kept on hitting the sell button.
A low price of oil and a struggling industry have seen the company go from consistently turning profits to having trouble staying out of the red.
Although it’s been a challenge for investors to find a reason to invest in the stock, this week there was some positivity around the company after it announced the sale of some of its assets. Crescent Point sold wells and properties located in Utah and Saskatchewan for $912 million.
The asset sales were welcomed by investors, as not only did analysts believe that the company received good value for them, but it was also a big injection of cash into the company’s financials, which will help its stability.
Currently, the company has $3.5 billion in long-term debt. Although that number has fallen from $4.2 billion just a year ago, Crescent Point is still looking to pay down its debt and lessen the strain on its financials. Last quarter, the company paid $38 million in interest costs, which was about 4.7% of its total revenue.
Investors will certainly be receptive to any ways in which the company can give itself better odds of posting a profit.
Does the sale suggest renewed optimism in the industry? What’s important to note is that not only is the sale of Crescent Point’s assets a good sign for the company itself, but perhaps the industry as a whole. The willingness of a buyer to pay fair value for the assets and not low-ball the company suggests stronger demand in the industry than analysts were expecting.
News of the Trans Mountain progress and the Keystone XL also inching toward possible construction have potentially given the industry some life and much-needed bullishness, especially in Canada.
While it’s too early to tell whether that’s the case — and a relatively low price of oil isn’t going to help — it could be an indication of improved conditions in the industry.
Is Crescent Point a buy on this news? While the stock has gotten a boost on the news of the sale, Crescent Point is still a risky buy today. The company still has a long way to go in proving that it’s found a way to consistently turn a profit.
While there have been times when the stock has risen in price this year, this hasn’t been sustainable. The uncertainty that remains in the industry therefore makes it difficult to get too excited about the stock.
However, with Crescent Point trading significantly below book value, it could be a calculated risk for an investor who’s unafraid to take a chance on the company. The potential upside could be significant if Crescent Point is able to recover, but there’s still no guarantee that the stock won’t end up falling further.
Fool contributor David Jagielski has no position in any of the stocks mentioned.
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