San Juan Basin Royalty Trust (NYSE:SJT), a USD$357.49M small-cap, operates in the oil and gas industry which has seen an extended oil price slump since 2014. However, energy-sector analysts are forecasting for the entire industry, a positive double-digit growth of 11.72% 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 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 San Juan Basin Royalty Trust is a laggard or leader relative to its energy sector peers. See our latest analysis for San Juan Basin Royalty Trust
What’s the catalyst for San Juan Basin Royalty Trust’s sector growth?
In the past five years, the oil and gas industry growth has been negative 40%, as a result of 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 in the previous year, the industry saw growth in the teens, beating the US market growth of 10.79%. San Juan Basin Royalty Trust leads the pack with its impressive earnings growth of over 100% last year. This proven growth may make San Juan Basin Royalty Trust a more expensive stock relative to its peers.
Is San Juan Basin Royalty Trust and the sector relatively cheap?
Oil and gas companies are typically trading at a PE of 14x, below the broader US stock market PE of 19x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 9.06% on equities compared to the market’s 10.46%, potentially illustrative of a turnaround. On the stock-level, San Juan Basin Royalty Trust is trading at a PE ratio of 10x, which is relatively in-line with the average oil and gas stock. In terms of returns, San Juan Basin Royalty Trust generated 486.58% in the past year, which is 477.52% over the oil and gas sector.
What this means for you:
Are you a shareholder? San Juan Basin Royalty Trust recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders, and the stock is currently trading in-line with its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto San Juan Basin Royalty Trust as part of your portfolio. However, if you’re relatively concentrated in oil and gas, you may want to value San Juan Basin Royalty Trust based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If San Juan Basin Royalty Trust has been on your watchlist for a while, now may be the time to enter into the stock. If you like its proven ability to generate growth, you’ll be paying a fair value for the company, given that it is trading relatively in-line with its peers. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time.
For a deeper dive into San Juan Basin Royalty Trust’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.