Gastar Exploration Inc (AMEX:GST), a US$188.09M small-cap, is an oil and gas company operating in an industry which has persevered through an extended oil price slump since 2014. However, energy-sector analysts are forecasting for the entire industry, a strong double-digit growth of 12.29% 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 the oil and gas industry an attractive sector-play right now? Below, I will examine the sector growth prospects, and also determine whether Gastar Exploration is a laggard or leader relative to its energy sector peers. View our latest analysis for Gastar Exploration
What’s the catalyst for Gastar Exploration’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. However, recently the sector saw a reversal in the downturn, and in the previous year, the industry saw growth in the teens, beating the US market growth of 9.87%. Gastar Exploration leads the pack with its impressive earnings growth of 88.62% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Gastar Exploration poised to deliver a 25.91% growth over the next couple of years compared to the industry’s 12.29%.
Is Gastar Exploration and the sector relatively cheap?
The oil and gas industry is trading at a PE ratio of 14.03x, in-line with the US stock market PE of 18.87x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 9.62% on equities compared to the market’s 10.49%, potentially illustrative of a turnaround. Since Gastar Exploration’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Gastar Exploration’s value is to assume the stock should be relatively in-line with its industry.
Gastar Exploration’s industry-beating future is a positive for investors. If Gastar Exploration 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. However, before you make a decision on the stock, I suggest you look at Gastar Exploration’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 GST’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 Gastar Exploration? 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.