Is Now The Right Time To Invest In Oil & Gas And Chinook Energy Inc (TSX:CKE)?
Chinook Energy Inc (TSX:CKE), a CAD$73.82M small-cap, is an oil and gas company operating in an industry which has endured a continued decline in oil prices since 2014. However, energy-sector analysts are forecasting for the entire industry, a highly optimistic growth of 68 percent in the upcoming year, and an enormous triple-digit earnings growth over the next couple of years. However this rate still came in below the growth rate of the Canadian stock market as a whole. Is now the right time to pick up some shares in oil and gas companies? In this article, I’ll take you through the energy sector growth expectations, and also determine whether CKE is a laggard or leader relative to its energy sector peers. View our latest analysis for Chinook Energy
What’s the catalyst for CKE's sector growth?
The oil and gas sector has been negative 40 percent in the past five years, due to the oil price crash. Global oil and gas companies cut capital expenditures by about 40 percent 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 past year, the industry turnaround delivered growth in the teens, beating the Canadian market growth of 14 percent. CKE leads the pack with its impressive earnings growth of 81 percent over the past year. This proven growth may make CKE a more expensive stock relative to its peers.
Is CKE and the sector relatively cheap?
The energy sector's PE is currently hovering around 34 times, higher than the rest of the Canadian stock market PE of 21 times. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 7 percent compared to the market’s 12 percent, illustrative of the recent sector upheaval. Since CKE’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CKE’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? CKE recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto CKE as part of your portfolio. However, if you’re relatively concentrated in oil and gas, you may want to value CKE based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If CKE has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the oil and gas industry. However, before you make a decision on the stock, I suggest you look at CKE’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into Chinook 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.
