Northern Drilling Ltd (OB:NODL), a ØRE4.59B small-cap, is an oil and gas company operating in an industry which has seen 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 low 3.35% growth over the next couple of years. This rate is below the growth rate of the NO 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. Below, I will examine the sector growth prospects, and also determine whether Northern Drilling is a laggard or leader relative to its energy sector peers. Check out our latest analysis for Northern Drilling
What’s the catalyst for Northern Drilling’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. 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 NO market growth of 4.21%. Northern Drilling leads the pack with its impressive industry-beating growth rate of 68.24% in the upcoming year. This optimistic future outlook may make Northern Drilling a more expensive stock relative to its peers.
Is Northern Drilling and the sector relatively cheap?
Oil and gas companies are typically trading at a PE of 9.81x, in-line with the NO stock market PE of 12.34x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 7.65% compared to the market’s 10.73%, illustrative of the recent sector upheaval. Since Northern Drilling’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Northern Drilling’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Northern Drilling’s industry-beating future is a positive for investors. If Northern Drilling has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the energy industry. However, before you make a decision on the stock, I suggest you look at Northern Drilling’s fundamentals in order to build a holistic investment thesis.
- 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.
- Historical Track Record: What has NODL’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.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Northern Drilling? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!