Stock Analysis

Is Aban Offshore Limited (NSE:ABAN) Still A Cheap Oil & Gas Stock?

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Aban Offshore Limited (NSEI:ABAN), a IN₨10.08B small-cap, is an oil and gas company operating in an industry which has endured an extended oil price slump since 2014. However, energy-sector analysts are forecasting for the entire industry, a positive double-digit growth of 15.63% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Indian stock market as a whole. Is the oil and gas industry an attractive sector-play right now? In this article, I’ll take you through the energy sector growth expectations, as well as evaluate whether Aban Offshore is lagging or leading its competitors in the industry. See our latest analysis for Aban Offshore

What’s the catalyst for Aban Offshore's sector growth?

NSEI:ABAN Past Future Earnings Feb 24th 18
NSEI:ABAN Past Future Earnings Feb 24th 18
The oil and gas sector has been negative 40% in the past five years, due to the oil price crash. Global oil and gas companies cut capital expenditures by about 40% during 2014 and 2016, and as part of this cost cutting initiative, some 400,000 workers were let go, with major projects cancelled or deferred. Only now has the sector begun to emerge from its turmoil, and in the previous year, the industry saw growth of over 50%, beating the Indian market growth of 14.44%. Aban Offshore lags the pack with its negative growth rate of -89.58% over the past year, which indicates the company has been growing at a slower pace than its energy peers. As the company trails the rest of the industry in terms of growth, Aban Offshore may also be a cheaper stock relative to its peers.

Is Aban Offshore and the sector relatively cheap?

NSEI:ABAN PE PEG Gauge Feb 24th 18
NSEI:ABAN PE PEG Gauge Feb 24th 18
The oil and gas industry is trading at a PE ratio of 8.8x, lower than the rest of the Indian stock market PE of 24.98x. This illustrates a somewhat under-priced sector compared to the rest of the market. Furthermore, the industry returned a higher 18.12% compared to the market’s 9.65%, potentially illustrative of a turnaround. Since Aban Offshore’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Aban Offshore’s value is to assume the stock should be relatively in-line with its industry.

Next Steps:

Aban Offshore has been an energy industry laggard in the past year. If Aban Offshore 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 Aban Offshore's fundamentals in order to build a holistic investment thesis.

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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.