Sometimes, the best investment opportunities are the ones that feel the most uncomfortable at first—particularly when high-quality stocks are trading below their true value. Prices may be down, but the fundamentals of the business remain strong. That gap between perception and reality is often where patient, long-term investors find their greatest rewards.
One such opportunity currently stands out: a Canadian stock that has fallen over 20% from its recent high, despite continuing to grow its revenue, pay dividends, and post solid profits. Let’s explore why this overlooked stock could be a great long-term holding.
The company in question is CES Energy Solutions (TSX:CEU), a Calgary-based provider of drilling fluids and production chemicals for major energy producers across Canada and the U.S. Despite its recent share price decline, CES has continued to deliver solid business performance.
As of now, CES trades at $7.49 per share, with a market cap of $1.6 billion and a 2.3% annualized dividend yield. Although it’s down 26% from its 52-week high, the stock has still surged 221% over the past three years and 600% over five years—a testament to its resilience and strong track record in the energy sector.
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The Dip Isn’t Due to Company Weakness
The recent slide in CES stock doesn’t appear to reflect any underlying issues with the business. In Q1 2025, the company reported record revenue of $632.4 million, a 7% increase year over year and 4% growth from the prior quarter. Adjusted EBITDA reached $99.9 million, with a healthy margin of 15.8%.
Although a shift in product mix and higher input costs impacted margins slightly, these headwinds appear to be short-term. Importantly, CES generated $77.8 million in funds flow from operations, up from both the previous quarter and the same period last year.
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Financial Strength and Long-Term Growth
CES also boasts a strong balance sheet, with a working capital surplus of $686.8 million, well above its total debt of $469.2 million. The company generated $25.6 million in free cash flow in Q1, despite elevated capital spending to support revenue growth.
Looking ahead, CES plans to invest about $80 million this year in capital expenditures, balancing maintenance with growth initiatives. The company’s ability to fund expansion while maintaining shareholder returns underscores its financial discipline and long-term potential.
Final Thoughts
While short-term traders may be discouraged by CES’s recent pullback, long-term investors might see this as a compelling entry point. The company is still growing, still producing cash, and still returning value to shareholders—all signs of an undervalued stock with staying power.
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