Azarga Uranium Corp (TSX:AZZ), a CADCA$19.34M small-cap, operates in the oil and gas industry which has endured a prolonged oil price downturn since mid-2014. However, energy-sector analysts are forecasting for the entire industry, a strong double-digit growth of 24.12% in the upcoming year , and a massive triple-digit earnings growth over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Canadian stock market as a whole. Should your portfolio be overweight in the oil and gas sector at the moment? In this article, I’ll take you through the energy sector growth expectations, and also determine whether AZZ is a laggard or leader relative to its energy sector peers. View our latest analysis for Azarga Uranium
What’s the catalyst for AZZ’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. Although profitability is always a key metric, in the oil and gas industry, growth in production and reserves has often been more important. In the past year, the industry delivered negative growth of -0.30%, underperforming the Canadian market growth of 8.26%. AZZ 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 AZZ may be trading cheaper than its peers.
Is AZZ and the sector relatively cheap?
The energy sector’s PE is currently hovering around 23x, higher than the rest of the Canadian stock market PE of 17x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 6.96% compared to the market’s 9.62%, illustrative of the recent sector upheaval. Since AZZ’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge AZZ’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? AZZ 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 AZZ as part of your portfolio. However, if you’re relatively concentrated in oil and gas, you may want to value AZZ based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If AZZ 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 AZZ’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 Azarga Uranium’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.