Greenvale Energy Limited (ASX:GRV), a AUDA$3.17M small-cap, operates in the oil and gas industry which has endured a continued decline in oil prices since 2014. However, energy-sector analysts are forecasting for the entire industry, a somewhat weaker growth of 4.86% 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 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. Today, I will analyse the industry outlook, as well as evaluate whether Greenvale Energy is lagging or leading its competitors in the industry. See our latest analysis for Greenvale Energy
What’s the catalyst for Greenvale Energy’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. 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 6.92%. Greenvale 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 Greenvale Energy may be trading cheaper than its peers.
Is Greenvale Energy and the sector relatively cheap?
The energy sector’s PE is currently hovering around 11x, lower than the rest of the Australian stock market PE of 18x. 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 12.16% on equities compared to the market’s 11.86%, potentially illustrative of a turnaround. Since Greenvale Energy’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Greenvale Energy’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Greenvale Energy has been an oil and gas industry laggard in the past year. If your initial investment thesis is around the growth prospects of Greenvale Energy, there are other oil and gas companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Greenvale Energy fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Greenvale Energy 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 Greenvale Energy’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Greenvale Energy’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.