Why the Tullow Oil share price could be about to soar

Tullow Oil plc (LON: TLW) appears to have a bright long-term future.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

In the last year the Tullow Oil (LSE: TLW) share price has risen by 37%. That’s a strong performance after a tough period for the oil and gas production company. It had traded as high as 500p as recently as four years ago, but lower oil prices have contributed to declining financial performance in the period since then.

Now though, a rising oil price alongside increased production could lead to a brighter outlook for the stock. Could it be worth buying alongside another company which released a trading statement on Thursday and that has disappointed investors in the last few years?

Improving outlook

As with any oil producer, Tullow is highly dependent upon the price of oil. In the last year, the price of Brent has risen by as much as 50%, and this has lifted the financial performance of a wide range of companies across the industry.

The company has also benefitted from a capital raising, which has been used to help reduce its leverage. It has ramped-up production in order to boost cash flow, with its TEN fields delivering a significant contribution to total output since coming onstream. Improving cash flow and falling debt could help the stock to become a less risky option, which may lead to improving investor sentiment.

Of course, the future for the oil price remains uncertain. Supply levels are challenging to predict, with various geopolitical factors having the potential to reduce supply in the short term. But with robust demand levels forecast over the medium term, the prospects for the industry seem to be more positive than they have been for a number of years.

With Tullow Oil trading on a price-to-earnings (P/E) ratio of 11, it seems to offer a wide margin of safety. As such, a continued rise in its share price could be ahead.

Difficult outlook

Also experiencing a tough period in the recent past has been online electrical retailer AO World (LSE: AO). The company has suffered from increased pressure on consumers, with its shares declining by around 45% from their level in 2014.

But it is on track to deliver on its long-term strategic plan according to a trading update released on Thursday. It recorded UK revenue growth of 8% in the most recent quarter, although weak consumer demand hurt its performance in June. In Europe, it has performed as per expectations, with year-on-year revenue growth of 46.2% being recorded.

With AO World competing in what is a crowded marketplace that is being hurt by weak consumer confidence, its prospects appear to be uncertain. It is expected to remain lossmaking in the current year, and this could cause investors to become increasingly nervous about its prospects. That’s especially the case since the prospects for consumer confidence are downbeat.

As a result, a return to its 2014 share price levels is difficult to justify at the present time. There could be more enticing opportunities elsewhere in the retail industry.

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

Investing Articles

I remain bullish on Nvidia stock despite its overvaluation

Our author says Nvidia stock is overvalued right now. However, he still thinks it might be worth him buying because…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d take the Warren Buffett approach to building a passive income empire

Christopher Ruane explains how he'd try to earn passive income streams from the stock market by learning from billionaire investor…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

2 of my most amazing buys from the FTSE 100 for passive income

The FTSE 100's home to a number of exceptional shares offering the prospect of handsome income. Here are two to…

Read more »

Investing Articles

1 AI stock to buy and hold for 10 years

AI spending's expected to soar in the next decade, according to most experts. Here's one stock to consider buying to…

Read more »

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

Dividend deals! 2 passive income stocks that still look undervalued

Royston Wild explains why these FTSE 250 passive income stocks might STILL be too cheap to miss, despite theirrecent price…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Is BT Group one of the FTSE 100’s greatest value shares?

BT's share price looks like a bargain when you look at the P/E ratio and dividend yield. Is it one…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

The National Grid share price just plunged another 10%. Time to buy?

The National Grid share price is one of the FTSE 100's most stable, and nothing much happens to it? Well,…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Up 15% in 3 months, but I still won’t touch Vodafone shares with a bargepole

Harvey Jones has been shunning Vodafone shares for years. The FTSE 100 stock is finally showing signs of life, but…

Read more »