Polo Resources Limited (AIM:POL), a UK£14.06M small-cap, operates in the oil and gas industry which has persevered through a prolonged oil price downturn since 2014. However, energy-sector analysts are forecasting for the entire industry, negative growth in the upcoming year , and a massive 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. Today, I will analyse the industry outlook, as well as evaluate whether Polo Resources is lagging or leading its competitors in the industry. View our latest analysis for Polo Resources
What’s the catalyst for Polo Resources’s sector growth?
The oil price collapse drove a negative 40% growth in the energy sector in the past five years. Large energy businesses have slashed their growth expenditures by over 40% since the collapse, and reduced headcount by nearly half a million workers. 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 12.33%. Polo Resources 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 Polo Resources may be trading cheaper than its peers.
Is Polo Resources and the sector relatively cheap?
The energy sector’s PE is currently hovering around 14.5x, in-line with the UK stock market PE of 17.64x. 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 Polo Resources’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Polo Resources’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Polo Resources 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 Polo Resources’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 POL’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 Polo Resources? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!