Is Premier Oil the best growth stock you can buy right now with oil above $70?

After doubling its share price over the past year are there further gains to come from Premier Oil plc (LSE: PMO)?

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Few would have guessed a year or two ago that Premier Oil (LSE: PMO) would go from dangerously close to insolvency to the third best performer in the FTSE 250, with an annual return of over 110%. But thanks to an emergency fund raising, a big new project coming online, and Brent crude prices now above $70/bbl, here we are.

But does that mean investors should rush to buy Premier Oil stock in hopes of further significant gains in its share price?

Well, bullish investors have a few points to make in their favour. One is that Premier’s production levels are ramping up significantly thanks to the Catcher field in the UK. In 2016, the company produced 71.4k barrels per day but is now guiding for 80k-85k for this year. And with operating costs per barrel down to $17/$18, the company is kicking off positive cash flow with oil prices where they are today.

The bad news is that this increased cash flow will be flowing directly to creditors instead of shareholders since net debt at the end of June was still a whopping $2.65bn. Management is confident that it will be able to bring net debt down to 2.5 times EBITDA by the end of March 2019, when its recently-amended covenants require a net debt to EBITDA ratio of under 3x.

However, this deleveraging is contingent on oil prices staying where they are right now, which is far from certain. Also, while Premier is making progress, its forward P/E ratio of 10.5 is no screaming bargain considering its balance sheet woes and lack of dividend. With oil prices unlikely to rise by 50% or more in the near future, as they have in the past year, I see no great catalyst for Premier’s share price to rise as rapidly as it has over the past year.

A roll-up growth story 

I see much more growth potential in stock for business support services provider Restore (LSE: RST). The company has grown rapidly in recent years by rolling up a series of smaller businesses to create a UK-wide leader in an array of unsexy but necessary services such as document shredding, physical and online document storage, and relocation assistance.

Last year alone, the group’s revenue increased by a full 36% to £176.2m while operating profits grew by a similar amount to £33.7m. And the first half of 2018 appears to be going just as well as management’s update disclosed trading was in line with expectations. A big boost will have come from businesses scrambling to shred or safely store customer data ahead of GDPR implementation, a trend which will hopefully persist as businesses become more aware of the financial pitfalls from misplacing customer data.

Looking forward, the group still has room to expand its core divisions as well as branch out into offering related services. With net debt at a little under 2x EBITDA it certainly has the financial firepower to continue making further acquisitions or focus on organic growth.

At its current valuation of 19 times forward earnings, I reckon Restore is a compelling buy-and-hold stock thanks to its attractive business model, rising dividends, and management’s proven ability to buy smaller rivals at good prices and successfully integrate them into the larger group.

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.

Ian Pierce 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.

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