The last year has been a successful period for the Gulf Keystone Petroleum (LSE: GKP) share price. The oil producer’s valuation has risen by around 200% due, in part, to the improving oil price outlook. Its financial prospects now seem to be brighter, and investors are happy to take greater risks in the oil and gas sector. Looking ahead, further share price growth could be on the cards.
Not all resources stocks have enjoyed such strong performance, though. Reporting on Friday was a mining company which could offer investment potential after a volatile period.
The company in question is gold miner SolGold (LSE: SOLG). Its final results showed that it’s been an eventful year for the company, having progressed with substantial parts of its Ecuadorian portfolio. For example, its Cascabel project has moved ahead, while the company has also identified 10 key regional projects to progress on. It also raised £45m in November 2017 to continue drilling at Cascabel, and seems well-placed to deliver further progress over the medium term.
The company’s share price performance has been highly volatile in the last year. While it’s up 16% during the period, there have been large parts of the last 12 months where it’s also been significantly down.
Looking ahead, SolGold could experience further volatility. A rising US interest rate is making income-producing assets more attractive to investors, while a stronger US dollar is also hurting demand for gold, to some degree. In the long run, however, the prospects for the gold price could be positive due to the potential for higher inflation and economic uncertainty. As such, and while potentially volatile in the near term, the stock could have investment appeal.
Improving financial performance
Gulf Keystone Petroleum’s financial prospects are set to improve dramatically over the medium term. The company is expected to post a rise in earnings of 63% in the next financial year, and this could help to improve investor sentiment. With the company’s shares trading on a price-to-earnings growth (PEG) ratio of 0.1, they seem to offer an impressive buying opportunity, based on their risk/reward ratio.
Clearly, there’s still the potential for heightened geopolitical risk in areas the company operates. This could cause high volatility in future, but ultimately, this risk appears to have been priced into the company’s valuation when compared to both sector and index peers.
With the prospect of a buoyant oil price due to stable demand and an uncertain outlook for supply, the oil and gas sector could continue to perform relatively well. While there may be less risky options than Gulf Keystone Petroleum that have greater diversity and more stable balance sheets, for less risk-averse investors the stock could hold investment appeal. A 200% share price rise over the next year may not be possible, but significant capital growth could nevertheless be ahead over the long term.
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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.