Anglo African Oil & Gas Plc (AIM:AAOG), a £7.30M small-cap, is an oil and gas company operating in an industry which has persevered through a prolonged oil price downturn since mid-2014. However, energy-sector analysts are forecasting for the entire industry, negative growth in the upcoming year , and a whopping growth of 38.53% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the UK 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. In this article, I’ll take you through the energy sector growth expectations, and also determine whether Anglo African Oil & Gas is a laggard or leader relative to its energy sector peers. Check out our latest analysis for Anglo African Oil & Gas
What’s the catalyst for Anglo African Oil & Gas’s sector growth?
The oil and gas sector has been negative 40% in the past five years, due to the oil price crash. 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 over the past year, the industry turnaround led to growth in the twenties, beating the UK market growth of 12.03%. Anglo African Oil & Gas 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 Anglo African Oil & Gas may be trading cheaper than its peers.
Is Anglo African Oil & Gas and the sector relatively cheap?
The energy sector’s PE is currently hovering around 14.5x, relatively similar to the rest of the UK stock market PE of 18x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 6.59% compared to the market’s 12.79%, illustrative of the recent sector upheaval. Since Anglo African Oil & Gas’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Anglo African Oil & Gas’s value is to assume the stock should be relatively in-line with its industry. In terms of returns, Anglo African Oil & Gas generated 106.26% in the past year, which is 99.67% over the oil and gas sector.
Next Steps:Anglo African Oil & Gas has been an energy industry laggard in the past year. If Anglo African Oil & Gas has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its energy peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Anglo African Oil & Gas’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 AAOG’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 Anglo African Oil & Gas? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!