Is the 88 Energy share price ridiculously low after 15% fall?

Could the 88 Energy Ltd (LON: 88E) share price regain lost ground after Monday’s fall?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Monday saw the release of news regarding a placing by oil and gas company 88 Energy (LSE: 88E). It plans to raise up to A$17m as it seeks additional funding for its projects. This contributed to a fall in its share price of around 15% following the news.

Could this mean that after a period of strong gains for the company’s shares, it now offers an impressive risk/reward ratio. Or is there a better option within the wider oil and gas industry at the present time?

Bright future?

As mentioned, there is scope for 88 Energy’s placing to reach AS$17m. This will be undertaken via a proposal to raise A$12m, plus the ability to take over-subscriptions of up to A$5m. The money raised is to be used to fund the continued evaluation of conventional and unconventional oil targets on Alaska’s North Slope. Even though the company has a cash balance of over A$10m, it has a major work programme ahead which may require additional funding.

The shares in the company will be priced at an 11% discount to its average share price in the last month. That means they will be A$0.037 each, and this appears to have contributed to the company’s significant stock price fall following the news.

Clearly, 88 Energy is a relatively high-risk stock which lacks the size and scale of a number of its sector peers. But after an improved period for the wider oil and gas industry, it could offer high returns over the long run. It appears to have a solid strategy, although it is highly dependent upon the quality of news released regarding its exploration and development programme.

Therefore, while it may only be of interest to less risk-averse investors, it could have a favourable risk/reward ratio for the long term.

Improving prospects?

Also offering upside potential within the oil and gas industry at the present time is Soco International (LSE: SIA). The company has experienced a challenging period, with asset writedowns hurting its financial performance, while it continues to trade on an exceptionally high valuation. It is due to move into profitability in the current year, but with a price-to-earnings (P/E) ratio of 75 it seems as though investors may already have factored this in.

Still, Soco International has no debt and appears to have the potential to generate improving cash flow. This could help to support a dividend which yields over 4% at the present time and could move higher if the company’s performance improves. Given the prospects for the oil price, there is a good chance that both profitability and investor sentiment across the sector could improve, and this may boost the company’s stock price.

And with the potential for M&A activity in future, as well as a relatively efficient business model, the prospects for the business appear to be risky but potentially rewarding. As such, it may be of interest to less risk-averse investors.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

View over Old Man Of Storr, Isle Of Skye, Scotland
Investing Articles

2 high-yield FTSE 250 shares I’d buy now – and 1 that I wouldn’t

This writer considers a trio of FTSE 250 shares with attractive dividend yields and explains which two he would buy…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

In a cyclical downturn, is there a buying opportunity in Croda shares?

With a positive sales outlook for 2024, is there a buying opportunity in Croda shares ahead of a potential recovery…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

£20,000 in savings? Here’s how I’d aim for £14,710 a year in passive income

With spare savings, this Fool would start generating passive income for a more comfortable retirement. Here he details how he'd…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,000 in savings? Here’s how I’d try to turn that into £581 a month of passive income

Relatively small investments in high-yielding stocks can grow through the power of dividend compounding into significant passive income.

Read more »

Photo of a man going through financial problems
Investing Articles

These are the FTSE’s biggest dogs over the last year!

The FTSE 100 has fallen far behind other major market indices over the past 12 months. However, these three sliding…

Read more »

Investing Articles

My top 3 stock market lessons from the Nvidia volcano eruption

Can we learn anything from the explosive rise in Nvidia's share price? Here are three Foolish reflections from this stock…

Read more »

Abstract 3d arrows with rocket
Investing Articles

Is boohoo the best near-penny stock to buy today?

This Fool asks why the boohoo share price has collapsed and whether now might be a good time to invest…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A brilliantly reliable FTSE 100 share I plan to never sell!

This FTSE-quoted share has raised dividends for more than 30 years on the spin! Here's why I plan to hold…

Read more »