Is this the best energy stock that money can buy after today’s results?

Should you add this energy company to your portfolio?

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Renewable energy specialist Mytrah Energy (LSE: MYT) has released an impressive set of results for the six months to 30 June. They provide guidance on whether now is the right time to ditch energy stocks such as BP (LSE: BP) and Cairn Energy (LSE: CNE) in favour of cleaner energy companies such as Mytrah.

In fact, Mytrah is experiencing a period of intense growth at the moment. Its revenue increased by 52% year-on-year. This helped to increase its earnings before interest, tax, depreciation and amortisation (EBITDA) by 56%, aided by an underlying EBITDA margin of 92%.

Underlying pre-tax profit was $2.49m and this leaves it with a cash balance of $32.2m. Alongside new banking facilities, it seems to have sufficient capital to develop its business and invest in new projects. On this topic, it has added a further 3.3MW to its portfolio, taking it to 917.2MW. This is ahead of target and has helped it stay on track to meet expectations for the full year.

Of course, renewable energy is becoming increasingly popular. This trend is set to continue in the long run and many investors may be wondering whether now is the right time to switch from oil and gas businesses such as BP and Cairn Energy and towards renewable specialists such as Mytrah.

Clearly, in the ultra-long term, renewables are likely to have a bright future due to stricter environmental regulations, lower pricing and incentives, as well as a more environmentally conscious business and consumer outlook. However, the lower price of oil means the switch from fossil fuels to renewables may be slower than expected as the financial incentive to switch is less attractive in the short-to-medium term.

Looking ahead, Mytrah is forecast to grow its pre-tax profit from £7.5m in the current year to as much as £20m next year. As such, its price-to-earnings (P/E) ratio of 18.1 appears to offer excellent value for money given its upbeat outlook. And with further growth on the horizon due to the renewable tailwind that’s likely to remain over the coming years, it appears to be a sound buy.

What’s the alternative?

However, that doesn’t mean oil and gas stocks such as BP and Cairn should be avoided. In the case of Cairn, it has a strong net cash position and an excellent asset base. It has also benefitted from a low oil price in terms of cost reductions, which should help to improve its near-term financial outlook. But with Cairn being lossmaking and forecast to remain so over the next two financial years, Mytrah has more growth potential and seems to have the superior risk/reward ratio.

Meanwhile, BP has a forward P/E ratio of 13.6 and offers much greater size, scale and diversity than Mytrah. This could count for a lot over the long run since changing regulations and incentives, as well as the uncertainty over how quickly the developing and developed world will adopt renewable technology, make it a relatively risky place to invest. Oil is likely to remain a key part of the energy mix over the coming years and now that BP is moving on from the Deepwater Horizon oil spill, its financial outlook is improving rapidly.

Therefore, BP seems to offer the most compelling risk/reward ratio, although for less risk-averse investors Mytrah offers superb capital gain potential.

Peter Stephens owns shares of BP. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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