AIM Energy Industry: A Deep Dive Into Edenville Energy Plc (LON:EDL)

Edenville Energy Plc (AIM:EDL), a GBP£7.22M small-cap, is an oil and gas company operating in an industry which has persevered through a continued decline in oil prices since mid-2014. However, energy-sector analysts are forecasting for the entire industry, an extremely elevated growth of 55.74% in the upcoming year , and a massive growth of 73.59% 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. Is now the right time to pick up some shares in oil and gas companies? Below, I will examine the sector growth prospects, and also determine whether Edenville Energy is a laggard or leader relative to its energy sector peers. See our latest analysis for Edenville Energy

What’s the catalyst for Edenville 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. 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 past year, the industry turnaround delivered growth of over 100%, beating the UK market growth of 11.63%. Edenville 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 Edenville Energy may be trading cheaper than its peers.

Is Edenville Energy and the sector relatively cheap?

The energy sector's PE is currently hovering around 24x, above the broader UK stock market PE of 18x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 5.74% compared to the market’s 12.78%, illustrative of the recent sector upheaval. Since Edenville Energy’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Edenville 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? Edenville Energy has been an oil and gas industry laggard in the past year. If your initial investment thesis is around the growth prospects of Edenville 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 Edenville Energy fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If Edenville 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 Edenville Energy’s future cash flows in order to assess whether the stock is trading at a reasonable price.

For a deeper dive into Edenville 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.

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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.