Ncondezi Energy Limited (AIM:NCCL), a GBP£12.93M small-cap, is an oil and gas company operating in an industry which has endured an extended oil price slump since mid-2014. However, energy-sector analysts are forecasting for the entire industry, negative growth in the upcoming year , and a whopping growth of 41.87% over the next couple of years. This rate is larger than the growth rate of the UK stock market as a whole. Should your portfolio be overweight in the oil and gas sector at the moment? Below, I will examine the sector growth prospects, as well as evaluate whether NCCL is lagging or leading its competitors in the industry. View our latest analysis for Ncondezi Energy

What’s the catalyst for NCCL’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. Only now has the sector begun to emerge from its turmoil, and in the past year, the industry turnaround delivered growth of over 50%, beating the UK market growth of 11.30%. NCCL lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means NCCL may be trading cheaper than its peers.

Is NCCL and the sector relatively cheap?

Oil and gas companies are typically trading at a PE of 14x, relatively similar to the rest of the UK stock market PE of 19x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 5.74% compared to the market’s 12.78%, illustrative of the recent sector upheaval. Since NCCL’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge NCCL’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? NCCL has been an oil and gas industry laggard in the past year. If your initial investment thesis is around the growth prospects of NCCL, there are other oil and gas companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how NCCL fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If NCCL has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its oil and gas peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at NCCL’s future cash flows in order to assess whether the stock is trading at a reasonable price.

For a deeper dive into Ncondezi Energy’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.