Adams Resources & Energy Inc (AMEX:AE), a USD$209.70M small-cap, operates in the oil and gas industry which has endured a prolonged oil price downturn since 2014. However, energy-sector analysts are forecasting for the entire industry, a positive double-digit growth of 11.73% 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 US 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, as well as evaluate whether Adams Resources & Energy is lagging or leading its competitors in the industry. Check out our latest analysis for Adams Resources & Energy
What’s the catalyst for Adams Resources & Energy’s sector growth?
Over the past couple of years, the energy sector delivered a disappointing 40% negative growth rate, driven by 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. However, recently the sector saw a reversal in the downturn, and in the past year, the industry turnaround delivered growth in the teens, beating the US market growth of 10.88%. Adams Resources & Energy leads the pack with its impressive earnings growth of 24.11% over the past year. This proven growth may make Adams Resources & Energy a more expensive stock relative to its peers.
Is Adams Resources & Energy and the sector relatively cheap?
Oil and gas companies are typically trading at a PE of 14x, lower than the rest of the US stock market PE of 19x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 9.06% on equities compared to the market’s 10.46%, potentially illustrative of a turnaround. Since Adams Resources & Energy’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Adams Resources & Energy’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Adams Resources & Energy recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Adams Resources & Energy as part of your portfolio. However, if you’re relatively concentrated in oil and gas, you may want to value Adams Resources & Energy based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Adams Resources & Energy has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the oil and gas industry. Before you make a decision on the stock, take a look at Adams Resources & Energy’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into Adams Resources & Energy’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other energy stocks instead? Use our free playform to see my list of over 300 other oil and gas companies trading on the market.
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.