Barnwell Industries Inc (AMEX:BRN), a USD$15.32M small-cap, is an oil and gas company operating in an industry which has persevered through a prolonged oil price downturn since 2014. However, energy-sector analysts are forecasting for the entire industry, a strong double-digit growth of 24.71% in the upcoming year, and an enormous growth of 43.94% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US 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. Below, I will examine the sector growth prospects, and also determine whether BRN is a laggard or leader relative to its energy sector peers. See our latest analysis for BRN
What’s the catalyst for BRN'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. Large energy businesses have slashed their growth expenditures by over 40% since the collapse, and reduced headcount by nearly half a million workers. In the past year, the industry delivered negative growth of -58.71%, underperforming the US market growth of 4.49%. BRN 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, BRN may also be a cheaper stock relative to its peers.
Is BRN and the sector relatively cheap?
Oil and gas companies are typically trading at a PE of 21x, relatively similar to the rest of the US stock market PE of 22x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 8.54% on equities compared to the market’s 9.99%, potentially illustrative of a turnaround. Since BRN’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge BRN’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? BRN has been an oil and gas industry laggard in the past year. If your initial investment thesis is around the growth prospects of BRN, there are other oil and gas companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how BRN fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If BRN has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its oil and gas peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at BRN’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Barnwell Industries'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.