Oil & Gas Industry Trends And Its Impact On Nighthawk Energy plc (LON:HAWK)
Nighthawk Energy plc (AIM:HAWK), a UK£4.82M small-cap, is an oil and gas company operating in an industry which has endured an extended oil price slump since 2014. However, energy-sector analysts are forecasting for the entire industry, negative growth in the upcoming year , and a strong near-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. Should your portfolio be overweight in the oil and gas sector at the moment? Today, I will analyse the industry outlook, as well as evaluate whether Nighthawk Energy is lagging or leading its competitors in the industry. Check out our latest analysis for Nighthawk Energy
What’s the catalyst for Nighthawk Energy’s sector growth?
The oil and gas sector has been negative 40% in the past five years, due to the oil price crash. 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 of over 100%, beating the UK market growth of 11.90%. Nighthawk 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 Nighthawk Energy may be trading cheaper than its peers.
Is Nighthawk Energy and the sector relatively cheap?
Oil and gas companies are typically trading at a PE of 14.56x, in-line with the UK stock market PE of 17.36x. 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 6.96% compared to the market’s 12.78%, illustrative of the recent sector upheaval. Since Nighthawk Energy’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Nighthawk Energy’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Nighthawk Energy has been an energy industry laggard in the past year. If Nighthawk 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 Nighthawk 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 HAWK’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 Nighthawk 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.
