Sonoro Energy Ltd (TSXV:SNV), a CADCA$5.32M 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, negative growth in the upcoming year . Is now the right time to pick up some shares in oil and gas companies? In this article, I’ll take you through the energy sector growth expectations, as well as evaluate whether SNV is lagging or leading its competitors in the industry. Check out our latest analysis for Sonoro Energy
What’s the catalyst for SNV'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. However, recently the sector saw a reversal in the downturn, and in the previous year, the industry saw growth in the teens, though still underperforming the wider Canadian stock market. SNV 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 SNV may be trading cheaper than its peers.
Is SNV and the sector relatively cheap?
Oil and gas companies are typically trading at a PE of 16x, in-line with the Canadian stock market PE of 17x. 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 6.77% compared to the market’s 9.06%, illustrative of the recent sector upheaval. Since SNV’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge SNV’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? SNV 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 SNV as part of your portfolio. However, if you’re relatively concentrated in oil and gas, you may want to value SNV based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If SNV 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 SNV’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 Sonoro 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.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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