In the last month, investor sentiment towards Hurricane Energy (LSE: HUR) seems to have improved. The stock has gained around 6% in that time as investors have apparently become more optimistic about its long-term growth potential.
Within what remains an uncertain oil and gas sector, the company seems to offer significant capital growth prospects. As such, now could be the right time to buy it ahead of what may prove to be a highly-rewarding period.
Improving outlook
After what has been an uncertain period for the company, Hurricane Energy now seems to be in the midst of a more encouraging period. Changes in its strategy and in management personnel have meant that investor sentiment has been somewhat mixed. However, with its Lancaster Early Production System (EPS) on track to deliver first production next year, its financial outlook is set to improve significantly.
In fact, the stock is expected to move from a period of losses to profitability in the 2019 financial year. On a per share basis, it is forecast to deliver a profit of 3.7p. Given that it trades at a share price of around 36p today, this equates to a forward price-to-earnings (P/E) ratio of under 10. This suggests that there could be a wide margin of safety on offer that may mean the risk/reward ratio is highly attractive.
Changing industry
Clearly, there is still some way to go before the company announces improving financial performance. There could be challenges ahead regarding its production, for example. However, sentiment across the oil and gas industry may remain relatively high over the medium term. The supply glut of recent years now appears to be at an end, and with global demand for oil expected to improve over the coming months, this could spark increased demand for oil and gas stocks among investors.
Therefore, while risky, Hurricane Energy appears to offer high potential rewards. Buying it now may be a shrewd move in what remains an uncertain period for the wider resources sector.
Bright future
Also facing a relatively bright future is fellow resources company Avesoro Resources (LSE: ASO). The West African gold producer released a production update on Monday which showed that it was able to deliver record gold production in the first quarter of its financial year. Total gold production in the quarter was 68,088 ounces, which is in line with 2018 production guidance of 220,000 to 240,000 ounces.
Since Avesoro trades on a forward P/E ratio of around 10, it seems to offer a wide margin of safety. The prospects for the gold price may also be set to improve. Already in 2018, the gold price has increased by over 2% and with uncertainty increasing regarding the performance of the US economy amidst interest rate rises, demand for the precious metal may increase. This could help to support higher profitability across the sector and with production growth expected for the business this year, now could be the right time to buy it.
