Argos Resources Limited (AIM:ARG), a UK£7.91M small-cap, operates in the oil and gas industry which has persevered through a prolonged oil price downturn since 2014. However, energy-sector analysts are forecasting for the entire industry, negative growth in the upcoming year , and a robust short-term growth of 20.77% over the next couple of years. This rate is larger than the growth rate of the UK stock market as a whole. Is the oil and gas industry an attractive sector-play right now? Today, I will analyse the industry outlook, and also determine whether Argos Resources is a laggard or leader relative to its energy sector peers. View our latest analysis for Argos Resources
What’s the catalyst for Argos Resources’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. 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 in the past year, the industry turnaround delivered growth of over 100%, beating the UK market growth of 11.95%. Given the lack of analyst consensus in Argos Resources’s outlook, we could potentially assume the stock’s growth rate broadly follows its energy industry peers. This means it is an attractive growth stock relative to the wider UK stock market.
Is Argos Resources and the sector relatively cheap?
The energy sector’s PE is currently hovering around 14.56x, relatively similar to the rest of the UK stock market PE of 17.76x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 6.79% compared to the market’s 11.98%, illustrative of the recent sector upheaval. On the stock-level, Argos Resources is trading at a higher PE ratio of 16x, making it more expensive than the average oil and gas stock. In terms of returns, Argos Resources generated 0.23% in the past year, which is 6.56% below the oil and gas sector.
Energy stocks are currently expected to grow slower than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards lower-growth. If growth was one of your main investment catalyst in the sector, now would be the time to revisit your holdings in Argos Resources. Keep in mind the sector is trading relatively in-line with the rest of the market, which may mean you’ll be selling out at a reasonable price. However, before you make a decision on the stock, I suggest you look at Argos 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 ARG’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 Argos 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.