Prosafe SE (OB:PRS), a ØRE1.05B small-cap, operates in the oil and gas industry which has seen an extended oil price slump since 2014. However, energy-sector analysts are forecasting for the entire industry, negative growth in the upcoming year , and a low 2.61% growth over the next couple of years. This rate is below the growth rate of the NO stock market as a whole. Is the oil and gas industry an attractive sector-play right now? Today, I will analyse the industry outlook, and also determine whether Prosafe is a laggard or leader relative to its energy sector peers. View our latest analysis for Prosafe
What’s the catalyst for Prosafe’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. 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 100%, beating the NO market growth of 4.21%. Prosafe 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 94.27% in the upcoming year. This future growth may make Prosafe a more expensive stock relative to its peers.
Is Prosafe and the sector relatively cheap?
The oil and gas industry is trading at a PE ratio of 9.78x, in-line with the NO stock market PE of 12.51x. 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 7.65% compared to the market’s 10.73%, illustrative of the recent sector upheaval. Since Prosafe’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Prosafe’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Prosafe’s industry-beating future is a positive for investors. If Prosafe 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 Prosafe’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 PRS’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 Prosafe? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!