Is Crescent Point (TSX:CPG) Too Risky to Invest in Today?

Crescent Point Energy Corp (TSX:CPG)(NYSE:CPG) stock has failed to rally, despite trading at a low price, and it could be a sign that investors are concerned that the company may not be out of the woods just yet.

| More on:

From afar, Crescent Point Energy (TSX:CPG)(NYSE:CPG) looks like it could be a very cheap buy today. Trading at just a fraction of its book value, the stock down more than 50% from a year ago and not far from all-time lows, investors might be tempted to pick up what could be a very appealing value buy. However, although the stock is definitely trading at a low, it still might not be a suitable investment for many investors.

Why the stock may not be the deal that it seems

At the end of 2018, Crescent Point recorded a significant impairment charge of $3.69 billion, which saw its financials take a big hit. And the problem is that while the company’s book value might suggest the stock is worth more, that can prove to be a moving number:

CPG Book Value (Quarterly) Chart

As conditions in the industry fail to improve, more write-downs could be around the corner, and we could see Crescent Point’s book value continue to plummet. And so investors need to be careful when just looking at something like book value to gauge a stock’s value, since it’s by no means locked in stone. The fact that the stock hasn’t been bought up, despite Crescent Point trading below book value, might suggest that investors don’t have much confidence in that number anyway.

After all, if an asset was trading below what you believed you could sell it for, then surely it would be a no-brainer to buy it. That’s not happening with Crescent Point, and it’s indicative of the risk that investors see in not just the company but the industry as a whole. Without more of a recovery, there could be more adjustments in the future that impact this valuation even further.

However, an argument could be made that the significant discount the stock is at now might justify an investment, simply because it is so large. The problem is that there are other issues keeping investors away from Crescent Point besides just the risk of impairment.

The company’s long-term debt was $3.8 billion last quarter, and although it has come down, it’s still well above half (58%) of its equity. And with the company’s sales being down this past quarter and Crescent Point just barely posting a profit, there’s a danger that if oil prices falter again, the situation might get even worse. The company may need to take on more debt, especially with the stock price being so low and making an equity issue that much more unappealing.

Bottom line

Crescent Point looks like a stock that could have a lot of upside, as it’s definitely a cheap investment, but it’s also one that comes with risk. Significant derivative losses of $259 million took a big chunk out of the company’s earnings last quarter, but that was partially offset by foreign exchange gains that helped Crescent Point finish in the black. These are just some examples of the volatility we’ve seen on the company’s financials lately and why the stock could take investors on a bit of a roller-coaster ride.

Despite its low price, Crescent Point stock is far from a sure thing, and it’s not an investment that’s for the faint of heart.

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 David Jagielski has no position in any of the stocks mentioned.

More on Energy Stocks

man touches brain to show a good idea
Energy Stocks

1 No-Brainer Energy Stock to Buy With $500 Right Now

Should you buy a cyclical energy stock at its decade-high? Probably not. But read this before you make a decision.

Read more »

A solar cell panel generates power in a country mountain landscape.
Energy Stocks

Top Canadian Renewable Energy Stocks to Buy Now

Here are two top renewable energy stocks long-term investors can put in their portfolios and forget about for a decade…

Read more »

oil and gas pipeline
Energy Stocks

Where Will Enbridge Stock Be in 3 Years?

After 29 straight years of increasing its dividend and a current yield of 6%, here's why Enbridge is one of…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

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

Enbridge stock just hit a multi-year high.

Read more »

oil pump jack under night sky
Energy Stocks

Where Will CNQ Stock Be in 3 Years?

Here’s why CNQ stock could continue to outperform the broader market by a huge margin over the next three years.

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Is Imperial Oil Stock a Buy, Sell, or Hold for 2025?

Valued at a market cap of $55 billion, Imperial Oil pays shareholders a growing dividend yield of 2.4%. Is the…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Where Will Imperial Oil Stock Be in 1 Year?

Imperial Oil is a TSX energy stock that has delivered market-thumping returns to shareholders over the last two decades.

Read more »