A Severely Undervalued Stock That’s Overdue for a Massive Upside Correction

Why Crescent Point Energy Corp (TSX:CPG)(NYSE:CPG) could soar into the stratosphere.

| More on:

Corrections in the context of the stock market have a negative connotation.

You’re probably familiar with the traditional downside correction when a security falls in price or corrects after it’s been discovered by the public that its shares have run up too far, too fast, resulting in a temporary overstatement of a security’s market value, which is some amount over its intrinsic value.

A flip-side scenario is also possible when a stock’s market value has fallen considerably below its intrinsic value. When it’s discovered that investors have been too pessimistic (usually through the release of better-than-expected earnings results), shares can correct to the upside and reward investors who saw the discrepancy between a stock’s market value and its intrinsic value.

One badly bruised stock that’s fallen well below what it’s worth, I believe, is Crescent Point Energy (TSX:CPG)(NYSE:CPG), a roughed-up driller that has experienced a tremendous fall from grace. The stock had nosedived over 92% from peak to trough, ruining a lot of investors who stood by the name as the rug was pulled from underneath the company’s feet in 2014.

The stock was the epitome of a value trap, injuring investors that attempted to catch the falling knife. High capital spending, sub-par acquisitions, a history of diluting shareholders, taking on exorbitant amounts of debt, and fat executive compensation packages were just some of the sore spots on Crescent Point, as the entire sector came crumbling down like a pack of cards.

Indeed, both investors and the balance sheet have been under unbearable amounts of stress in the past!

Ex-CEO Scott Saxberg was eventually shown the door after spending 17 years with the firm, and while shares have continued to crash further, there are reasons to believe that the worst days could already be in the rear-view mirror due to some developments that can only be described as encouraging.

Management’s new focus is on lowering costs of production, improving the health of the balance sheet, and driving sustainable improvements at the operational level.

A lot of Crescent Point’s past issues weren’t just because oil prices fell off a cliff. There was quite a bit of mismanagement as an unsuccessful activist investor shed light on just over a year ago. With a new strategic shift now apparent, I’m liking the new trajectory, but it’s the severely depressed valuation that has me licking my chops!

At the time of writing, the stock trades at just 0.4 times book and 0.9 times sales. That’s ridiculously cheap, especially when you consider the changes to management’s strategy and the subtle improvements that have been going on behind the scenes.

As company-specific fundamental improvements are made in conjunction with the industry-wide picture, I certainly see a scenario where Crescent Point could become a multi-bagger. Of course, you’d need to be patient with the name and not give too much merit to those potentially violent short-term fluctuations.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned.

More on Dividend Stocks

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »