Aemetis Inc (NASDAQ:AMTX), a USD$15.46M small-cap, is an oil and gas company operating in an industry which has seen an extended oil price slump since mid-2014. However, energy-sector analysts are forecasting for the entire industry, a strong double-digit growth of 11.87% 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. Is now the right time to pick up some shares in oil and gas companies? Below, I will examine the sector growth prospects, and also determine whether Aemetis is a laggard or leader relative to its energy sector peers. View our latest analysis for Aemetis
What’s the catalyst for Aemetis’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 past year, the industry turnaround delivered growth in the teens, beating the US market growth of 10.81%. Aemetis lags the pack with its negative growth rate of -16.64% over the past year, which indicates the company has been growing at a slower pace than its energy peers. However, in the upcoming year, Aemetis is expected to deliver growth in-line with its industry peers, at a growth rate of 10.53%.
Is Aemetis and the sector relatively cheap?
The oil and gas industry is trading at a PE ratio of 15x, relatively similar to the rest of the US stock market PE of 20x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 9.13% on equities compared to the market’s 10.46%, potentially illustrative of a turnaround. Since Aemetis’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Aemetis’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Aemetis’s future growth prospect shows that it is able to keep up with its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Aemetis as part of your portfolio. However, if you’re relatively concentrated in energy, you may want to value Aemetis based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Aemetis has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the energy industry. Before you make a decision on the stock, take a look at Aemetis’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into Aemetis’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.