RHC Capital Corporation (TSXV:RHC), a CA$8.31M small-cap, operates in the oil and gas industry which has seen a prolonged oil price downturn since 2014. However, energy-sector analysts are forecasting for the entire industry, negative growth in the upcoming year . 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, as well as evaluate whether RHC Capital is lagging or leading its competitors in the industry. View our latest analysis for RHC Capital
What’s the catalyst for RHC Capital’s sector growth?
The oil price collapse drove a negative 40% growth in the energy sector in the past five years. Although profitability is always a key metric, in the oil and gas industry, growth in production and reserves has often been more important. Only now has the sector begun to emerge from its turmoil, and in the previous year, the industry saw growth in the teens, though still underperforming the wider Canadian stock market. RHC Capital 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 RHC Capital may be trading cheaper than its peers.
Is RHC Capital and the sector relatively cheap?
Oil and gas companies are typically trading at a PE of 14.15x, in-line with the Canadian stock market PE of 16.29x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 6.45% compared to the market’s 9.20%, illustrative of the recent sector upheaval. Since RHC Capital’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge RHC Capital’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:RHC Capital recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If the stock has been on your watchlist for a while, now may be the time to buy, if you like its ability to deliver growth and are not highly concentrated in the energy industry. However, before you make a decision on the stock, I suggest you look at RHC Capital’s fundamentals in order to build a holistic investment thesis.
- 1. 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.
- 2. Historical Track Record: What has RHC’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.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of RHC Capital? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!