Abilene Oil and Gas Limited (ASX:ABL), a AUDA$3.98M small-cap, is an oil and gas company operating in an industry which has endured a prolonged oil price downturn since mid-2014. However, energy-sector analysts are forecasting for the entire industry, a somewhat weaker growth of 4.86% 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 Australian stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the oil and gas sector right now. In this article, I’ll take you through the energy sector growth expectations, and also determine whether Abilene Oil and Gas is a laggard or leader relative to its energy sector peers. See our latest analysis for Abilene Oil and Gas
What’s the catalyst for Abilene Oil and Gas’s sector growth?
The oil price collapse drove a negative 40% growth in the energy sector in the past five years. 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 over the past year, the industry turnaround led to growth of over 50%, beating the Australian market growth of 6.92%. Abilene Oil and Gas 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 Abilene Oil and Gas may be trading cheaper than its peers.
Is Abilene Oil and Gas and the sector relatively cheap?
The energy sector’s PE is currently hovering around 11x, lower than the rest of the Australian stock market PE of 18x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 12.16% on equities compared to the market’s 11.86%, potentially illustrative of a turnaround. Since Abilene Oil and Gas’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Abilene Oil and Gas’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Abilene Oil and Gas has been an oil and gas industry laggard in the past year. If your initial investment thesis is around the growth prospects of Abilene Oil and Gas, there are other oil and gas companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Abilene Oil and Gas fits into your wider portfolio and the opportunity cost of holding onto the stock.