With shares in Centrica (LSE: CNA) having fallen by 7% since the turn of the year, a recovery may seem unlikely. After all, the oil and gas industry has been a highly volatile space in recent months and with Centrica having raised funds recently, investor sentiment towards the energy supplier is rather weak.
However, with Centrica having a sound strategy through which to turn its financial performance around, now could be a good time to buy it. That’s not to say that further share price falls can be ruled out, but rather that in the coming years it could beat the performance of the wider index.
That’s because Centrica is set to become a more focused domestic energy supplier, with it due to exit a number of its oil and gas interests in the coming years. This should lead to major cost savings that could aid cash flow and allow the company to increase dividends at a faster rate than it otherwise would. And with Centrica yielding 6% and trading on a price-to-earnings (P/E) ratio of just 13.4, it seems to be a strong long-term buy.
Tough times
Also recording disappointing share price performance since the turn of the year has been Sports Direct (LSE: SPD). Its shares have fallen by 38% year-to-date and while some of this is due to weakening investor sentiment surrounding the negative publicity endured during recent months, the reality is that Sports Direct’s financial performance has been rather disappointing.
For example, the company’s international operations have experienced a difficult period and are set to contribute to a fall in the company’s bottom line of 4% in the current year. Due to this, it would be of little surprise for Sports Direct’s share price to fall yet further – especially since the outlook for the wider UK retail industry remains somewhat challenging.
However, with Sports Direct expected to record a rise in net profit next year and its shares trading on a price-to-earnings growth (PEG) ratio of 1.2, it could still prove to be a strong long-term performer.
Look elsewhere?
Meanwhile, Genel Energy’s (LSE: GENL) valuation has slumped this year by 19% even though a number of its oil industry peers have experienced far superior share price performance. Of course, while the oil price has risen and caused investor sentiment to improve, this has been offset by disappointing news flow for Genel Energy.
For example, it reduced its reserves estimates and continues to offer uncertainty regarding the repayment of monies owed for past oil exports. And with northern Iraq being a politically highly uncertain region in which to operate, Genel Energy is facing a tough medium-term outlook.
Clearly, Genel Energy has the potential to turn around its disappointing share price performance. It has a sound strategy and a high quality asset base. However, with other oil and gas plays offering superior risk/reward opportunities, it may be prudent to invest elsewhere.