Have Investors Already Priced In Oil & Gas Growth For Houston American Energy Corp (NYSEMKT:HUSA)?
Houston American Energy Corp (AMEX:HUSA), a $19.28M small-cap, operates in the oil and gas industry which has endured a prolonged oil price downturn since 2014. However, energy-sector analysts are forecasting for the entire industry, a positive double-digit growth of 11.71% 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 Houston American Energy is a laggard or leader relative to its energy sector peers. View our latest analysis for Houston American Energy
What’s the catalyst for Houston American Energy’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 over the past year, the industry turnaround led to growth in the teens, beating the US market growth of 10.58%. Houston American 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 Houston American Energy may be trading cheaper than its peers.
Is Houston American Energy and the sector relatively cheap?
The energy sector’s PE is currently hovering around 15.2x, relatively similar to the rest of the US stock market PE of 20.1x. 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 10.47%, potentially illustrative of a turnaround. Since Houston American Energy’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Houston American Energy’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Houston American Energy has been an energy industry laggard in the past year. If Houston American Energy has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its energy peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Houston American Energy’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 HUSA’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 Houston American Energy? 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.
