Interra Resources Limited (SGX:5GI), a S$36.92M small-cap, operates in the oil and gas industry which has persevered through a prolonged oil price downturn since mid-2014. However, energy-sector analysts are forecasting for the entire industry, a fairly unexciting growth rate of 7.03% 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. Should your portfolio be overweight in the oil and gas sector at the moment? Today, I will analyse the industry outlook, and also determine whether Interra Resources is a laggard or leader relative to its energy sector peers. Check out our latest analysis for Interra Resources

What’s the catalyst for Interra Resources’s sector growth?

The oil and gas sector has been negative 40% in the past five years, due to the oil price crash. Global oil and gas companies cut capital expenditures by about 40% during 2014 and 2016, and as part of this cost cutting initiative, some 400,000 workers were let go, with major projects cancelled or deferred. Only now has the sector begun to emerge from its turmoil, and over the past year, the industry turnaround led to growth in the thirties, beating the Singapore market growth of 11.99%. Interra Resources lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Interra Resources may be trading cheaper than its peers.

Is Interra Resources and the sector relatively cheap?

The oil and gas industry is trading at a PE ratio of 9.85x, relatively similar to the rest of the Singapore stock market PE of 13.95x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 16.53% compared to the market’s 7.99%, potentially illustrative of a turnaround. Since Interra Resources’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Interra Resources’s value is to assume the stock should be relatively in-line with its industry.

Next Steps:

Interra Resources recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If the stock has been on your watchlist for a while, now may be the time to buy, if you like its ability to deliver growth and are not highly concentrated in the energy industry. However, before you make a decision on the stock, I suggest you look at Interra Resources’s fundamentals in order to build a holistic investment thesis.

• 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

• 2. Historical Track Record: What has 5GI’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

• 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Interra Resources? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.