Clontarf Energy plc (AIM:CLON), a GBP£2.01M 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, an extremely robust growth of 55.74% in the upcoming year , and a massive growth of 73.59% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the UK stock market as a whole. Is now the right time to pick up some shares in oil and gas companies? Today, I will analyse the industry outlook, and also determine whether Clontarf Energy is a laggard or leader relative to its energy sector peers. View our latest analysis for Clontarf Energy
What’s the catalyst for Clontarf Energy’s sector growth?
The oil price collapse drove a negative 40% growth in the energy sector in the past five years. 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 of over 100%, beating the UK market growth of 11.51%. Clontarf Energy lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Clontarf Energy may be trading cheaper than its peers.
Is Clontarf Energy and the sector relatively cheap?
The energy sector’s PE is currently hovering around 24x, higher than the rest of the UK stock market PE of 18x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a lower 5.74% compared to the market’s 12.77%, illustrative of the recent sector upheaval. Since Clontarf Energy’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Clontarf 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? Clontarf Energy has been an oil and gas industry laggard in the past year. If your initial investment thesis is around the growth prospects of Clontarf Energy, there are other oil and gas companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Clontarf Energy fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Clontarf Energy 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 Clontarf Energy’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Clontarf 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.