Is Rawson Oil and Gas Limited (ASX:RAW) Still A Cheap Oil & Gas Stock?
Rawson Oil and Gas Limited (ASX:RAW), a AUDA$3.14M 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 low 7.36% growth over the next couple of years. This rate is below the growth rate of the Australian stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the oil and gas sector right now. In this article, I’ll take you through the energy sector growth expectations, and also determine whether RAW is a laggard or leader relative to its energy sector peers. Check out our latest analysis for Rawson Oil and Gas
What’s the catalyst for RAW’s sector growth?
Much of the oil and gas industry has survived an especially tough few years with weak demand and low prices. Large energy businesses have slashed their growth expenditures by over 40% since the collapse, and reduced headcount by nearly half a million workers. Only now has the sector begun to emerge from its turmoil, and in the previous year, the industry saw growth of over 50%, beating the Australian market growth of 5.37%. RAW 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 RAW may be trading cheaper than its peers.
Is RAW and the sector relatively cheap?
The oil and gas industry is trading at a PE ratio of 11x, below the broader Australian stock market PE of 17x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 12.16% on equities compared to the market’s 11.92%, potentially illustrative of a turnaround. Since RAW’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge RAW’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? RAW has been an oil and gas industry laggard in the past year. If your initial investment thesis is around the growth prospects of RAW, there are other oil and gas companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how RAW fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If RAW 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 RAW’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Rawson Oil and Gas’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.
