This year has been relatively volatile for share prices so far. Investors have swung between optimism and pessimism as they try to digest the geopolitical changes which are taking place in Europe and the US. However, a number of shares have risen sharply in the first part of the current year. Today sees one such stock release an update for the final quarter of the 2016 financial year. Could now be the right time to buy it following its 17% rise since we rang in the New Year?
Increased production
The company in question is Victoria Oil & Gas (LSE: VOG), which is a Cameroon energy utility stock. The final quarter of 2016 saw its average gas production increase 7% to 7.64m standard cubic feet per day (mmscf/d) when compared to the same quarter of the previous year. It also saw a rise in gross sales for its key Logbaba asset of 4.5% for the quarter, which takes its increase to 24% for the full year.
The company’s drilling programme is also progressing relatively well. Furthermore, a new pipeline to Bonaberi also came on-stream and three new customers began consuming gas as a result of the extension in the fourth quarter of the year. The company has a net cash position of $1.3m, while the New Year has started well and it managed to hit a record production level in January.
Outlook
Clearly, the oil & gas industry is in the midst of a major turnaround at the present time. Prices for the two commodities could rise over the coming months as supply and demand may begin to move back into equilibrium. Therefore, there’s plenty of opportunity for profitability across the industry to rise. For example, sector peer Tullow Oil (LSE: TLW) is forecast to return to profitability this year before recording a rise in its bottom line of an impressive 74% in 2018. This is largely due to increased production, although a brighter outlook for the oil & gas sector could also be a contributing factor.
This rate of growth puts the company’s shares on a forward price-to-earnings (P/E) ratio of just 13.7. Given its potential for further growth, this seems to be a very fair price to pay. In contrast to this, while Victoria Oil & Gas is expected to increase its bottom line by 88% in the current year, since it trades on a forward P/E ratio of 100, this growth seems to have already been priced-in by the market.
So, while Victoria Oil & Gas is performing relatively well as a business, it seems to be somewhat unattractive as an investment. That’s especially the case when it’s possible to buy a larger, fast-growing stock such as Tullow Oil for a fraction of the price. Therefore, on a relative basis, there may be stronger performers in 2017 than Victoria.