Vermilion Energy Stock Is Trading Near Its 52-week Lows – Time to Invest?

Due to the fluctuating price of oil, the energy sector has been losing steam over the past few months. Some of the best performers for 2022, though, have been rapidly losing value. Vermilion Energy Stock stands out among the group (TSX:VET). The stock is trading at its 52-week lows today after losing 48% since last August. Last week, the price of VET fell below $20 per share, reaching a 52-week low of $17 in January 2022.

Whats next for Vermilion Energy stock?

The VET stock showed tremendous momentum at this time last year. Vermilion shares increased by 130% from January to August, outpacing the market by a wide margin. However, due to European windfall taxes, Vermilion’s year may go differently.

Due to its wide asset base, Vermilion significantly distinguishes itself from its competitors. It derives approximately a third of its total income from European energy assets. The same exposure that helped it perform better last year has been hurting it since August.

Additionally, natural gas costs have decreased over the past two weeks because of the warmer weather. The decline has accelerated even more in Europe, which has terribly impacted VET stock.

Vermilion and windfall taxes

The uncertainty caused by windfall taxes caused Vermilion Energy shares to suspend its share repurchase program last year. It began its share buyback program and announced an anticipated dividend increase of 25% in the forecast for 2023 that was released last week.

The most recent advice, however, was unable to improve investor mood. This is because, despite some respite, new problems were introduced by the instructions. The production guidance for the year came in below expectations, which somewhat marred the sentiment. Thenoil and Gas Produced anticipates producing about 89,000 barrels of oil per day in 2023, which is far less than analysts had predicted.

According to the forecast, Vermilion Energy anticipates paying between $250 million and $300 million in windfall taxes in 2022 and 2023, respectively. Nearly 25% of its annual profits are represented by it. But it appears that the stock has already begun to reflect this impact.

Financial growth and valuation

Vermilion Energy announced free cash flows of $507 million during the previous twelve months, an impressive 54% increase from 2021. It’s interesting to note that it used a significant amount of this additional free cash flow to pay off debt. As a result, the long-term total debt decreased from $2 billion in 2020 to $1.4 billion at the end of the third quarter of 2022. With less debt, the company will pay less interest, boosting profitability moving into 2023.

After its recent decline, Vermilion Energy stock appears to be appealing. In terms of valuation, the company is selling at a 21% free cash flow yield, higher than the average of its peers’ yields, roughly 16%. VET appears to be a good investment trading at a three times price-to-earnings ratio. Given the discounted valuation, it could be wise to start VET now.

Risk priced in

Key concerns for Vermilion include decreased gas prices and a greater impact on windfall taxes. But the stock price appears to have already factored in both of these dangers. Therefore, if gas prices in this region stabilize, we might only see a small amount of Vermilion Energy Stock present levels decline.