At one time, Toronto’s Pacific Rubiales Energy Corp. was the hottest company on the Toronto Stock Exchange. Between 2006 and 2011, the oil and gas junior’s shares grew by an unmatched 5,000%. But, in early 2011 that sprint came to a grinding halt. The stock price fell about 50% that year. It’s down another 17% over the past 12 months. While it might seem like Pacific Rubiales’ best days are behind it, a number of analysts think that growth will soon pick up again.
There were two main reasons the company’s progress stalled, says Jared Dziuba, an equity research analyst at BMO Capital Markets. The company operates in Colombia, where drilling activity got so overheated that the country put restrictions on production. Its management team’s ego also became inflated from all its success. “They were leaning on their past accomplishments and didn’t talk enough about the future,” he says.
However, new production permits in Colombia and an effort to diversify away from the country—Pacific Rubiales now has operations in Peru and Guatemala—should help boost growth again. Dziuba thinks it can grow earnings by 20% a year, and predicts its stock price will climb from $20 today to about $34.
It’s also an attractive buy from a valuation perspective, trading at a discount to its Canadian-focused peers. Domestic companies typically trade at 5.5 times cash flow, says Dziuba, while Pacific Rubiales is trading closer to 3.4 times. Should investors start paying attention again, its valuation will rebound.