MEG Energy Corp (TSX:MEG), a CA$1.91B small-cap, operates in the oil and gas industry which has seen a continued decline in oil prices since 2014. However, energy-sector analysts are forecasting for the entire industry, a positive double-digit growth of 20.98% in the upcoming year , and an enormous growth of 59.67% over the next couple of years. This rate is larger than 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 MEG Energy is a laggard or leader relative to its energy sector peers. See our latest analysis for MEG Energy
What’s the catalyst for MEG Energy’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. However, recently the sector saw a reversal in the downturn, and over the past year, the industry turnaround led to growth in the twenties, beating the Canadian market growth of 17.25%. MEG Energy lags the pack with its which indicates the company will be growing at a slower pace than its energy peers. As an industry laggard, MEG Energy may be a cheaper stock relative to its peers.
Is MEG Energy and the sector relatively cheap?
The energy sector’s PE is currently hovering around 16.43x, relatively similar to the rest of the Canadian stock market PE of 15.75x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 7.32% compared to the market’s 10.94%, illustrative of the recent sector upheaval. On the stock-level, MEG Energy is trading at a lower PE ratio of 11.33x, making it cheaper than the average oil and gas stock. In terms of returns, MEG Energy generated 4.19% in the past year, which is 3.14% below the oil and gas sector.
Next Steps:MEG Energy is an energy industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, MEG Energy is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at MEG Energy’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has MEG’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of MEG Energy? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!