Canadian Natural Resources Limited (TSX:CNQ), a CA$55.66B large-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, an extremely robust growth of 34.13% in the upcoming year , and a whopping triple-digit earnings growth over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Canadian stock market as a whole. Is now the right time to pick up some shares in oil and gas companies? In this article, I’ll take you through the energy sector growth expectations, and also determine whether Canadian Natural Resources is a laggard or leader relative to its energy sector peers. See our latest analysis for Canadian Natural Resources
What’s the catalyst for Canadian Natural Resources’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. However, recently the sector saw a reversal in the downturn, and in the past year, the industry turnaround delivered growth of over 50%, beating the Canadian market growth of 15.40%. Canadian Natural Resources leads the pack with its impressive earnings growth of over 100% last year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 25.50% compared to the wider energy sector growth hovering in the thirties next year.
Is Canadian Natural Resources and the sector relatively cheap?
The energy sector’s PE is currently hovering around 19.99x, relatively similar to the rest of the Canadian stock market PE of 15.91x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 6.49% compared to the market’s 10.18%, illustrative of the recent sector upheaval. On the stock-level, Canadian Natural Resources is trading at a PE ratio of 19.93x, which is relatively in-line with the average oil and gas stock. In terms of returns, Canadian Natural Resources generated 8.54% in the past year, which is 2.05% over the oil and gas sector.
If Canadian Natural Resources has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is an energy industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the energy sector. However, before you make a decision on the stock, I suggest you look at Canadian Natural Resources’s fundamentals in order to build a holistic investment thesis.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Historical Track Record: What has CNQ’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Canadian Natural Resources? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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.