Technological expertise gives this stock a special niche in the oil and gas industry and helps it profit even when energy prices are lower.
The company’s equipment helps drillers achieve far more efficient results, raising their revenues and lowering their costs. That means the company benefits whenever oil and gas drilling is on the rise. Its revenue and cash flow both jumped in the most recent quarter. A strong balance sheet also lets the company spend a high percentage of its revenue on research.
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PASON SYSTEMS (Toronto symbol PSI; www.pason.com)serves drilling contractors for oil and gas firms in Canada, the U.S., Mexico and Argentina. The company provides them with rental equipment for monitoring and managing land-based oil rigs. Its systems also let clients remotely monitor their wells.
Pason’s wide range of equipment includes such technological innovations as an Automatic Driller that sets the correct weight on drill bits for maximum efficiency; a Directional Express System that lets operations engineers manage the output of multiple wells; a Rig Display touchscreen computer especially designed for use outdoors and in hazardous locations; and a Hazardous Gas Alarm System.
In 2017, Pason acquired Verdazo Analytics Inc., a privately owned Calgary-based software company specializing in “discovery” analytics. The software developed by Verdazo helps energy producers enhance production and improve operations. In addition to energy producers, the company client’s include financial service companies and energy service firms.
Energy stocks: Company has no debt, spends a high 8.6% on research
In the quarter ended March 31, 2018, Pason’s revenue jumped 25.0%, to $73.8 million from $59.0 million a year earlier. The main reason for the rise was increased oil drilling activity in the U.S.
Cash flow per share soared 60.0%, to $0.40 from $0.25 a year earlier. That was due to the higher revenue, but also from lower costs following the company’s restructuring.
Meanwhile, Pason holds cash of $162.8 million, or $1.91 a share; it has no debt. In the latest quarter, it spent $6.4 million, or a high 8.6% of revenue, on research.
The company’s products let drilling firms increase their output and lower their operating costs. The steady demand for those products, despite lower oil and gas prices, has helped to maintain Pason’s sales and cash flow. It has also kept its balance sheet strong. The company should gain even more as prices further recover.
The company has paid a dividend since 2003. It switched from semi-annual to quarterly payments five years ago; the annual rate of $0.68 yields 3.3%.
Recommendation in Stock Pickers Digest: Pason Systems is still a buy.
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