It hasn't been the smoothest ride for Energy One Ltd (ASX: EOL) shareholders over the past year.
Despite operating in a sector benefiting from structural tailwinds, the ASX small-cap's share price has fallen more than 35% from its recent peak. For many investors, that kind of decline can raise red flags.
But dig a little deeper, and the underlying business appears to be telling a very different story.
What does Energy One actually do?
Energy One is not your typical energy company.
Rather than producing or supplying power, it provides software, outsourced operations, and advisory services to wholesale energy, environmental, and carbon trading markets across Australia and Europe.
Its platform helps participants manage complex tasks like trading, market communication, and power plant operations — effectively acting as digital infrastructure for increasingly sophisticated energy markets.
As grids become more decentralised and volatile, software like this becomes more critical.
Strong results hiding behind the share price fall
While the share price has pulled back, recent financial results paint a picture of a business gaining momentum.
For the latest half, Energy One reported:
- Revenue of $34.8 million, up 21%
- Annual recurring revenue (ARR) of $64.0 million, up 20%
- Operating margins (EBITDA margin) expanding to 21%
- Underlying net profits (underlying NPAT) of $4.5 million, up 56%
- Net debt reduced to $5.8 million (down $7.2 million)
This is the kind of profile investors often look for in small-cap software businesses: recurring revenue, expanding margins, and improving balance sheet strength.
In particular, the growth in ARR suggests increasing visibility and predictability, which can be valuable in more uncertain market environments.
Why the disconnect?
So why has the share price gone backwards?
There's no single answer, but a few themes may be at play.
First, ASX small-cap tech and software names have been under pressure more broadly as interest rates rise and expectations remain elevated. Higher discount rates can weigh on valuations, particularly for growth-oriented businesses.
Second, Energy One operates in a niche that doesn't always attract widespread attention. Unlike high-profile AI or consumer tech names, its role in energy market infrastructure is more behind the scenes.
And finally, the software industry as a whole has faced valuation headwinds in the face of AI disruption. Sentiment against software as a service (SaaS) stocks turned negative in early this year, described as a "SaaSpocalypse", driven by fears that AI tools will disrupt the traditional software business model.
Broker sees potential upside
Interestingly, at least one broker sees the current weakness as an opportunity.
Ord Minnett has placed a buy rating on the stock with a price target of $21.58, implying potential upside of more than 50% over the next 12 months.
The broker also highlighted the company's margin expansion and its position as a profitable, cash-generative business growing revenue at over 20% annually.
That combination — growth plus profitability — is not always easy to find in the ASX small-cap universe.
The bigger picture
Zooming out, Energy One sits at the intersection of several long-term trends.
Energy markets are becoming more complex, driven by electrification, renewables, and decentralisation. That complexity tends to increase demand for software, data, and automation.
If that theme continues to play out, companies providing the "plumbing" of these markets could quietly benefit.
Of course, small caps come with their own risks — including execution, competition, and market volatility.
But with strong recent growth, improving margins, and a share price well below its highs, this ASX small cap may be one to keep on the radar.
The post This energy focussed ASX small-cap could surge 50% as earnings build appeared first on The Motley Fool Australia.
Motley Fool contributor Leigh Gant has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Energy One. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2026