San Juan Basin Royalty Trust (NYSE:SJT), a $435.33M small-cap, operates in the oil and gas industry which has seen a continued decline in oil prices since mid-2014. However, energy-sector analysts are forecasting for the entire industry, a positive double-digit growth of 12.74% 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 US stock market as a whole. Is now the right time to pick up some shares in oil and gas companies? In this article, I’ll take you through the energy sector growth expectations, and also determine whether San Juan Basin Royalty Trust is a laggard or leader relative to its energy sector peers. View our latest analysis for San Juan Basin Royalty Trust
What’s the catalyst for San Juan Basin Royalty Trust’s sector growth?
The oil and gas sector has been negative 40% in the past five years, due to the oil price crash. Although profitability is always a key metric, in the oil and gas industry, growth in production and reserves has often been more important. However, recently the sector saw a reversal in the downturn, and in the past year, the industry turnaround delivered growth in the teens, beating the US market growth of 10.48%. San Juan Basin Royalty Trust leads the pack with its impressive earnings growth of over 100% last year. This proven growth may make San Juan Basin Royalty Trust a more expensive stock relative to its peers.
Is San Juan Basin Royalty Trust and the sector relatively cheap?
Oil and gas companies are typically trading at a PE of 14.8x, lower than the rest of the US stock market PE of 19.9x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 9.19% on equities compared to the market’s 10.47%, potentially illustrative of a turnaround. On the stock-level, San Juan Basin Royalty Trust is trading at a PE ratio of 12x, which is relatively in-line with the average oil and gas stock. In terms of returns, San Juan Basin Royalty Trust generated 486.58% in the past year, which is 477.39% over the oil and gas sector.
Next Steps:San Juan Basin Royalty Trust recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders, and the stock is currently trading in-line with its peers. If the stock has been on your watchlist for a while, now may be the time to buy. If you like its proven ability to generate growth, you’ll be paying a fair value for the company. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best opportunity. However, before you make a decision on the stock, I suggest you look at San Juan Basin Royalty Trust’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 SJT’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 San Juan Basin Royalty Trust? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!