It’s been a rather dull year for investors in Premier Oil (LSE: PMO). Whilst shares in the oil explorer and producer are up around 6% year-to-date (compared with a FTSE 100 that’s slightly down), it’s hardly the kind of performance you’d expect from a supposed growth stock. Even much larger and more stable sector peers such as Shell (LSE: RDSB) (NYSE: RDS.B.US) and BP (LSE: BP) (NYSE: BP.US) have either matched or outperformed Premier Oil in 2014 — BP is up 5.5% and Shell is up 11%.
The Right Strategy
However, Premier Oil continues to get its strategy right, with the latest example of that being this week, when it announced the disposal of three of its North Sea interests. The three non-operated interests have delivered a significant amount of cash flow to Premier Oil, but now seems to be the right time for it to focus on developing other assets in the North Sea with the capital generated from the sales.
In addition, Premier Oil expects to make further disposals this year as it seeks to stimulate the bottom-line, although it seems to be performing well on that front. Indeed, earnings per share (EPS) are forecast to increase by 24% in the current year and by 17% next year, which is significantly above the market average, and above-and-beyond the growth rates offered by Shell and BP (+1% and +6% next year, respectively).
Great Value
As well as having the right strategy, which is delivering strong growth in profit, Premier Oil also seems to be a steal at current price levels. For example, it trades on a price to earnings (P/E) ratio of just 10.4, which compares favourably to the index P/E of 14 as well as the P/Es of Shell and BP (11.6 and 10.6 respectively) and shows that Premier Oil appears to offer strong growth at a very reasonable price.
Looking Ahead
Of course, the major negative with a company such as Premier Oil is the fact that it has a smaller asset base, a weaker cash flow and less diverse operations than Shell or BP. Therefore, the two oil majors, despite having lower growth rates and higher P/Es, do appear to be worthy of investment. However, Premier Oil could complement them well in a Foolish portfolio and seems to offer great long-term potential.