Has the GKP share price finally turned a corner?

Does Gulf Keystone Petroleum Limited (LON: GKP) offer investment potential for the long run?

| 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.

In the last year the Gulf Keystone Petroleum (LSE: GKP) share price has increased by 150%. It has risen from 100p to 250p, with the surge in the price of oil contributing to improving investor sentiment. Alongside this, the company’s planned increase in production is expected to yield improved financial performance over the next couple of years.

Despite this, the stock still trades on a relatively low valuation. Alongside another cheap stock which released results on Tuesday, could it be worth buying for the long term?

Improving outlook

As mentioned, the price of oil has risen significantly in recent months. In fact, it is up by around 50% in the last year, and this has improved the outlook for a number of oil and gas producers. It means that the focus on cost-cutting and efficiency of recent years has been transferred to an aim to increase production in many cases, with Gulf Keystone Petroleum set to increase gross production capacity over the next 12 to 18 months.

Looking ahead, the company is expected to deliver a substantial rise in pre-tax profit over the next two years. It is forecast to rise from £14m last year to £49m this year, followed by a further increase to £61m next year. Even though its shares have risen sharply in the last 12 months, they still seem to offer a wide margin of safety. For example, they trade on a price-to-earnings (P/E) ratio of 10.5 using 2019’s forecast earnings. This suggests there could be further upside potential.

Certainly, the oil price could be volatile and there is no guarantee that it will continue to rise. However, with what seems to be a bright future, the risk/reward ratio of Gulf Keystone Petroleum appears to be attractive at the present time.

Bargain buy?

Also offering growth at a reasonable price is consumer goods producer McBride (LSE: MCB). It released a trading update on Tuesday that showed it has endured a challenging year. It now expects profit for the full year to be towards the lower end of analyst expectations, with weaker sales in May and June being the primary reason for this.

Clearly, this is disappointing news for investors. However, the company is expected to return to growth in the 2019 financial year, with its bottom line forecast to rise by around 19%. This puts it on a price-to-earnings growth (PEG) ratio of 0.5, which suggests that it offers a wide margin of safety.

Following McBride’s trading update, its share price fell by around 6%. This suggests that investor sentiment remains weak following a 12-month period in which it has lost a third of its value. However, with the sale of its European Personal Care liquids business for £12.5m being announced on Tuesday and the company having such a low valuation, it could offer impressive returns over the long-term.

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 considered so you should 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

Modern suburban family houses with car on driveway
Investing Articles

Should I snap up Taylor Wimpey shares at £1.30?

With the Taylor Wimpey share price down by almost 30% this year, should I snap up some shares while it's…

Read more »

Young female analyst working at her desk in the office
Investing Articles

How I’m finding shares to buy now – and keep for a decade

Our writer has been looking for shares to buy using an approach that looks both at long-term profit prospects and…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

What’s happening to the Petrofac (PFC) share price?

The Petrofac (LON:PFC) share price has had a seriously erratic year so far. I take a look at the latest…

Read more »

Young black woman in a wheelchair working online from home
Investing Articles

The Aviva share price is flying! Should I buy this 7% yield?

Despite recent gains, Roland Head thinks the Aviva share price could still be too cheap.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Here’s 1 passive income opportunity not to be missed!

This Fool details a passive income opportunity that could bolster his holdings, and the shares trading at cheap levels too.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

The Legal & General share price is dirt-cheap with a juicy dividend yield!

Jabran Khan takes a closer look at the Legal & General share price which looks like an opportunity to boost…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

If I’d invested £1,000 in this top lithium stock 5 years ago, here’s how much I’d have now!

This lithium stock has gone from strength to strength over the past year. But has it flown too high, or…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A growth stock with a price-to-earnings ratio of just 9.7! Should I buy Yalla?

I'm generally not too keen on investing in dollar-demonated stocks at the moment. But Yalla, with its low price-to-earnings ratio,…

Read more »