Polarcus Limited (OB:PLCS), a ØRE816.92M small-cap, is an oil and gas company operating in an industry which has seen a continued decline in oil prices since mid-2014. However, energy-sector analysts are forecasting for the entire industry, negative growth in the upcoming year , and a whopping triple-digit earnings growth over the next couple of years. This rate is larger than the growth rate of the NO 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, and also determine whether Polarcus is a laggard or leader relative to its energy sector peers. Check out our latest analysis for Polarcus
What’s the catalyst for Polarcus’s sector growth?
Much of the oil and gas industry has survived an especially tough few years with weak demand and low prices. 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. However, recently the sector saw a reversal in the downturn, and in the previous year, the industry saw growth of over 100%, beating the NO market growth of 7.47%. Polarcus lags the pack with its earnings falling by more than half over the past year, which indicates the company has been growing at a slower pace than its energy peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 94.11% in the upcoming year. This future growth may make Polarcus a more expensive stock relative to its peers.
Is Polarcus and the sector relatively cheap?
The energy sector’s PE is currently hovering around 12.61x, relatively similar to the rest of the NO stock market PE of 13.73x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 6.67% compared to the market’s 10.53%, illustrative of the recent sector upheaval. Since Polarcus’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Polarcus’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Polarcus’s industry-beating future is a positive for investors. If Polarcus 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 Polarcus’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 PLCS’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 Polarcus? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!