Gaylin Holdings Limited (SGX:RF7), a SGD$43.80M small-cap, is an oil and gas company operating in an industry which has endured a prolonged oil price downturn since 2014. However, energy-sector analysts are forecasting for the entire industry, an extremely elevated growth of 37.46% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Singapore stock market as a whole. Is now the right time to pick up some shares in oil and gas companies? Below, I will examine the sector growth prospects, as well as evaluate whether Gaylin Holdings is lagging or leading its competitors in the industry. Check out our latest analysis for Gaylin Holdings
What’s the catalyst for Gaylin Holdings’s sector growth?
In the past five years, the oil and gas industry growth has been negative 40%, as a result of the oil price collapse. Although profitability is always a key metric, in the oil and gas industry, growth in production and reserves has often been more important. Only now has the sector begun to emerge from its turmoil, and in the previous year, the industry saw growth in the forties, beating the Singapore market growth of 7.92%. Gaylin Holdings lags the pack with its earnings falling by more than half over the past year, which indicates the company has been growing at a slower pace than its energy peers. As the company trails the rest of the industry in terms of growth, Gaylin Holdings may also be a cheaper stock relative to its peers.
Is Gaylin Holdings and the sector relatively cheap?
Oil and gas companies are typically trading at a PE of 23x, higher than the rest of the Singapore stock market PE of 14x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 6.21% on equities compared to the market’s 7.94%, potentially illustrative of a turnaround. Since Gaylin Holdings’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Gaylin Holdings’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Gaylin Holdings has been an oil and gas industry laggard in the past year. If your initial investment thesis is around the growth prospects of Gaylin Holdings, there are other oil and gas companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Gaylin Holdings fits into your wider portfolio and the opportunity cost of holding onto the stock.