San Juan Basin Royalty Trust (NYSE:SJT), a USD$361.22M small-cap, is an oil and gas company operating in an industry which has seen a prolonged oil price downturn since 2014. However, energy-sector analysts are forecasting for the entire industry, a positive double-digit growth of 24.71% in the upcoming year, and an enormous growth of 43.94% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US stock market as a whole. Is the oil and gas industry an attractive sector-play right now? Today, I will analyse the industry outlook, as well as evaluate whether SJT is lagging or leading its competitors in the industry. View our latest analysis for San Juan Basin Royalty Trust
What’s the catalyst for SJT’s sector growth?
Over the past couple of years, the energy sector delivered a disappointing 40% negative growth rate, driven by 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 previous year, the industry endured negative growth of -58.71%, underperforming the US market growth of 4.49%. SJT leads the pack with its impressive earnings growth of over 100% last year. This proven growth may make SJT a more expensive stock relative to its peers.
Is SJT and the sector relatively cheap?
The energy sector’s PE is currently hovering around 21x, in-line with the US stock market PE of 22x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 8.54% on equities compared to the market’s 9.99%, potentially illustrative of a turnaround. On the stock-level, SJT is trading at a lower PE ratio of 14x, making it cheaper than the average oil and gas stock. In terms of returns, SJT generated 330.70% in the past year, which is 322.16% over the oil and gas sector.
What this means for you:
Are you a shareholder? SJT recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. In addition to this, its PE is below its oil and gas peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market isn’t as bullish of the growth going forward. If your investment thesis of the company hasn’t changed, now may be the right time to accumulate more of SJT, if you’re not already highly concentrated in the stock.
Are you a potential investor? If SJT has been on your watchlist for a while, now may be the best time to enter into the stock. Its industry-beating growth delivered have not been fully accounted for in its shares given its lower PE ratio relative to its peers. But before you make the decision to buy, I recommend you also look at other important fundamentals such as the health of the company, and see whether there is a significant reason why the stock may be trading at a discount in the oil and gas sector.
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.