Analyzing Small Cap Stocks: AKITA Drilling  

The TDR Three Key Takeaways regarding AKITA Drilling and Small-Cap Stock:

1. In the past year, AKITA Drilling generated $152 million in revenue, reflecting its strong financial performance in a competitive market
2. Over a five-year period, the growth rate stands at 13.8%, and over three years, it is 23.5%, indicating a long-term upward trend.
3. AKITA Drilling has tangible assets worth $190 million and debt of $73 million, resulting in net assets of $117 million (net of debt)

AKITA Drilling, (TSX: AKT.A, OTC: AKTAF), a service provider in the oil and gas drilling industry, presents an intriguing investment opportunity for those willing to explore the small-cap sector. It primarily operates in Texas and Alberta, renting out expensive drilling rigs at daily rates that can reach up to $25,000. Despite its critical role in the oil and gas sector, AKITA Drilling remains relatively under the radar with a daily trading volume of only $30,000. The company’s market capitalization is $37 million with 39.3 million outstanding shares.

In the past year, AKITA Drilling generated $152 million in revenue, reflecting its strong financial performance in a competitive market. However, the company experienced a 6% decline in revenue compared to the previous year. Over a five-year period, the growth rate stands at 13.8%, and over three years, it is 23.5%, indicating a long-term upward trend despite short-term volatility. The leverage-free cash flow last year was $12.4 million, and the company is trading at just three times its leverage-free cash flow, suggesting a conservative valuation.

AKITA Drilling maintains a healthy gross margin of 25%, underscoring its efficiency in the industry. The real highlight lies in its balance sheet, which reveals significant tangible assets. The company has tangible assets worth $190 million and debt of $73 million, resulting in net assets of $117 million (net of debt). These figures indicate that AKITA Drilling’s tangible assets are worth approximately four to five times its current market cap, highlighting a substantial undervaluation by the market. Additionally, the company reported a depreciation of $21 million last year, suggesting that the actual value of these assets could be even higher.

The drilling industry is known for its cyclical nature, closely tied to oil prices and drilling demand. As of June 7th, the data shows 594 rigs in use in the US, 143 in Canada, and 953 internationally. AKITA Drilling’s operations are largely concentrated in Texas and Alberta, regions known for significant drilling activities. The company’s recent credit rating of 6 supports the thesis of investing in financially strong companies within this sector.

AKITA Drilling’s strong asset base, solid cash flow, and conservative valuation present an attractive entry point for investors. Given its financial health and strategic positioning, AKITA Drilling is a promising candidate for those looking to benefit from the oil and gas industry’s cyclical upswings. Want to be updated on Cannabis, AI, Small Cap, and Crypto? Subscribe to our Daily Baked in Newsletter!