The last year has been an encouraging one for oil producer Premier Oil (LSE: PMO). The company’s share price has risen from 64p to around 120p, with its operational and financial performance improving.
Of course, the company has benefitted significantly from a rising oil price. It has boosted the outlook for a range of oil and gas stocks, and has caused investor sentiment to improve.
Looking ahead, could the company’s share price gain another 25% to reach 150p? Or, is a FTSE 250 stock that offers fast-rising earnings a better investment opportunity for the long run?
The recent trading update released by Premier Oil showed that the company is performing relatively well. It has been able to increase production and is on track to meet its guidance for the full year. Rising production plus a higher oil price has meant that its financial performance is also on the up. The business expects to generate significant free cash flow in the second half of the year, and this is due to be used to reduce its debt. Doing so could create a stronger business which has a more sustainable growth outlook.
With Premier Oil expected to generate earnings per share of 11p in the current year, it trades on a price-to-earnings (P/E) ratio of just under 11. This suggests that even though its valuation has risen sharply in the last year, it may still offer a wide margin of safety. That’s especially the case since it is forecast to post a rise in net profit of 10% next year. This could stimulate its share price performance and means that even if it surges 25% higher to 150p, it would still offer good value for money.
As a result, the company appears to have further upside potential following an impressive performance in the last year. While the oil price could be volatile, the risk/reward prospects of the stock seem to be positive.
Also offering an upbeat outlook at the present time is FTSE 250 stock Electrocomponents (LSE: ECM). The multi-channel distributor released an impressive set of full-year results on Thursday which pushed its share price around 10% higher. Its revenue increased by 12.8% to £1.705bn, with all five of its regions delivering double-digit like-for-like growth.
Alongside this, its gross margin increased to 44% as a result of progress on price and discounting initiatives. This helped to push its earnings per share up by 35.2% on an adjusted basis. And with earnings growth of 13% forecast for the current year, followed by growth of 10% next year, it seems to be in the middle of a purple patch.
Electrocomponents also announced the acquisition of IESA, the leading corporate MRO, on Thursday for a total consideration of £88m. It expands the company’s existing e-commerce offer and platform technology capabilities, while also enhancing its service offer to corporate customers. As a result, the prospects for the business seem to be improving, and its share price performance could remain impressive.
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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.