ALX Uranium Corp (TSXV:AL), a CADCA$6.71M small-cap, operates in the oil and gas industry which has endured a prolonged oil price downturn since 2014. However, energy-sector analysts are forecasting for the entire industry, negative growth in the upcoming year . Should your portfolio be overweight in the oil and gas sector at the moment? Today, I will analyse the industry outlook, as well as evaluate whether ALX Uranium is lagging or leading its competitors in the industry. Check out our latest analysis for ALX Uranium
What’s the catalyst for ALX Uranium’s sector growth?
TSXV:AL Growth In Earnings Dec 30th 17
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. However, recently the sector saw a reversal in the downturn, and over the past year, the industry turnaround led to growth in the teens, though still underperforming the wider Canadian stock market. Given the lack of analyst consensus in ALX Uranium’s outlook, we could potentially assume the stock’s growth rate broadly follows its energy industry peers. This means it is an attractive growth stock relative to the wider Canadian stock market.
Is ALX Uranium and the sector relatively cheap?
TSXV:AL PE PEG Gauge Dec 30th 17
Oil and gas companies are typically trading at a PE of 16x, relatively similar to the rest of the Canadian stock market PE of 17x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 6.69% compared to the market’s 9.17%, illustrative of the recent sector upheaval. On the stock-level, ALX Uranium is trading at a lower PE ratio of 2x, making it cheaper than the average oil and gas stock. In terms of returns, ALX Uranium generated 27.24% in the past year, which is 20.54% over the oil and gas sector.
What this means for you:
Are you a shareholder? Oil and gas stocks are currently expected to grow slower than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards lower-growth. If growth was one of your main investment catalyst in the sector, now would be the time to revisit your holdings in ALX Uranium. Keep in mind the sector is trading relatively in-line with the rest of the market, which may mean you’ll be selling out at a reasonable price.
Are you a potential investor? The energy sector’s below-market growth and average valuation hardly makes it an exciting investment case. If you’re looking for a high-growth stock with potential mispricing, it seems like oil and gas companies like ALX Uranium isn’t the right place to look. However, if you’re interested in the stock for other reasons, I suggest you research more into the company’s cash flow as well as its financial health in order to gain a holistic view of the stock.
For a deeper dive into ALX Uranium’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other energy stocks instead? Use our free playform to see my list of over 300 other oil and gas companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.