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One monster growth stock I’d buy today and one I’d consider selling

One of the risks of investing in growth stocks is that you’ll end up with money tied up in companies that never quite live up to their potential.

Today I’m looking at two stocks whose performances have sometimes been disappointing but show promise. Should you buy, hold or sell?

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Hunting for customers

Cameroon-focused gas producer Victoria Oil & Gas (LSE: VOG) received a big blow in January when the company’s largest customer, utility group ENEO, declined to renew its supply contract. The firm’s shares have fallen 32% since this news was announced.

Although a new deal may yet be signed, figures released by the firm today suggest that the outlook for the year ahead is now quite uncertain.

Gas sales to ENEO accounted for 53% of related revenue from the Logbaba project last year. With this source of revenue lost — temporarily at least — the group’s finances have been weakened.

Management has been forced to set more modest operational goals for this year. It’s now targeting daily production of 9 million standard cubic feet (mmscf/d) by the end of 2018 if the ENEO contract isn’t renewed.

To put this in context, average daily gas production in 2017 was 10.98mmscf/d, so this guidance represents a cut of at least 18%.

Weaker financial situation

The group’s financial situation has also weakened. Revenue fell from $32.8m to $23.9m last year. Despite raising $23m in a share placing in October, net debt was $14m at the end of 2017, compared to a net cash position of $1.8m at the end of 2016.

As a result of this worsening financial situation, “the company’s previously announced capital expenditure programme for 2018 will be deferred until further clarity is obtained on the ENEO situation”.

The board has maintained its ambitious production target of 100mscf/d by 2021. I’m not convinced that this is realistic. Indeed, if the ENEO contract isn’t renewed very soon, I think shareholders could face further losses.

One growth stock I would buy

Kurdistan-based oil group Genel Energy (LSE: GENL) is another company that hasn’t lived up to original hopes. But I think the company’s management has performed well in very difficult circumstances.

In contrast to Victoria Oil & Gas, Genel has consistently been able to generate cash from its assets. This means that it’s been able to fund capital expenditure and production growth, without having to raise cash from shareholders.

Indeed, the company recently reported free cash flow before interest payments of $140m for 2017. That equates to a price/free cash flow ratio of about 7 at the current share price. Some of this cash was used to help complete a refinancing deal which saw net debt fall to $138m at the end of 2017, from $241m a year earlier.

If this performance is sustained, then I believe Genel shares could be cheap at current levels. The group expected 2018 production to be close to the Q4 2017 level of 32,760 bopd.

There are also opportunities for growth. The Bina Bawi field is estimated to have light oil resources of 37.1m barrels. This field is close to its existing export infrastructure, so could potentially be developed and placed on production quite quickly.

I’d give Genel Energy a speculative buy rating.

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Roland Head 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.