Crescent Point Energy Corp (NYSE:CPG) engages in the exploration, development and production of oil and gas properties. Its focus areas include: Viewfield Bakken, Flat Lake Torquay, and Shaunavon. The company was founded in 1994 and is headquartered in Calgary, Canada.
Crescent Point Energy Corp's stock is currently trading at $7.21, as of 14 Mar 2022, and is up by 28% year-to-date (YTD). Over the past year, the stock is up by 59% whilst the S&P 500 is also up by 6%, meaning the stock has outperformed the market by approximately 53% over this period.
But what do the underlying trends and fundamentals at the Crescent Point Energy Corp tell us about its potential as a long-term investment?
Why are fundamental metrics important?
Stock prices are usually driven by a company’s financial performance over the long term, and it makes sense to analyze a company’s fundamentals in detail before deciding to invest.
‘Fundamentals’ are a set of key metrics which can help you, as an investor, assess the financial health of the organization as well as its growth prospects.
There are a number of fundamental metrics to look at, but the ones we like to focus on are price to earnings ratio (P/E ratio), earnings per share (EPS), price to sales ratio (P/S ratio) and debt. When they are analyzed together, these metrics can start to 'paint the picture' and help you understand if a company is a solid investment.
With this in mind, let's take a look at Crescent Point Energy Corp’s fundamentals and see if they can tell us anything about the company’s potential as an investment.
Crescent Point Energy Corp's stock by the numbers
A good place to start is to look at CPG's EPS, which tells us how profitable the company is on a 'per share' basis. This metric is calculated by taking a company's net income (after dividends on preferred stock) and dividing it by the number of outstanding shares.
Crescent Point Energy Corp's EPS is 3.28, based on its most recent financial statements, and year-on-year, the company's EPS grew by 192%, which is encouraging.
Analyzing a company's P/E ratio is also helpful to tell us how cheap or expensive a stock is, or how much of a premium investors are willing to pay for a company's earnings. It is calculated by taking the price of a stock and dividing this by the earnings per share. A higher ratio suggests that the stock is expensive in relation to its earnings, and a lower ratio indicates the opposite.
CPG has a P/E ratio of 2.18, based on its most recent financial statements. This is 80% lower than the average P/E ratio across CPG's industry (which is 10.8) and indicates that the stock may be undervalued compared to companies in the same sector at present.
Next, let's look at CPG's P/S ratio, which looks at the company's stock price compared to its sales (revenues). It is calculated as the current price divided by sales for the previous 12 months, and is useful because it helps us understand how much investors are willing to pay for every dollar of a company's revenues. The consensus opinion is that those stocks with a lower P/S ratio offer better value, and those with a very low P/S ratio are known as 'value stocks', although what is considered a 'high' or 'low' P/S Ratio can vary across different sectors, so the best way to objectively assess it is to compare a company against its industry peers.
CPG's P/S ratio is currently 1.84. Compared to the sector-wide average of 2.8, this is 55% lower, indicating that the stock may offer slightly more value compared to other companies in the same sector.
Another key metric to look at is a company's price to book value (P/BV), which tells us how much investors are willing to pay for a company's assets. It is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book'). P/BV is used by value investors to identify potential investments, and a P/BV of 1 is usually considered a solid investment.
Based on its most recent financial statements, Crescent Point Energy Corp's P/BV is 0.98, which is 52% lower than the industry benchmark of 1.9.
Finally, it's always worth looking at a company's debt profile before deciding to invest in order to assess the risk. A high amount of debt can be a problem if a company is not generating enough cash flow to service its debt, and some sectors rely on debt more heavily than others.
As of 14 Mar 2022, Crescent Point Energy Corp has total debt of $1672M, which has fallen by 12% over the past year, and it also has cash & short-term investments totalling $11M on-hand, meaning the company has approximately $1672M in ‘net debt’.
What constitutes an acceptable level of total debt can vary considerably among different industries, but there's no denying that Crescent Point Energy Corp's current levels of net debt are worrying, and tell us that the company might be using debt to fund its operations, which is not good to see.
The bottom line on CPG's stock
All in all, when we looked at the underlying trends at Crescent Point Energy Corp, we were encouraged by what we saw.
To be more specific, the stock is up by 28% YTD and the company has a lower P/E ratio, lower P B/V and lower P/S ratio compared to competitors within the same industry. That's what we like to see.
Whilst we can't ignore the fact that the company may be relying on debt a bit too much, we think CPG might just be doing enough to deserve a spot in your portfolio right now.
As with any stock however, there are additional factors to consider before making an investment decision. Please do your own due diligence before buying shares.