The performance of a number of shares has been disappointing in recent months. Investor sentiment has declined considerably, with fears surrounding the prospects for domestic and international economies seemingly causing a shift towards an increasingly risk-off attitude.
One share which has fallen heavily in recent weeks is oil and gas company Hurricane Energy (LSE: HUR). It’s declined by 33% since the start of October, with a weaker oil price sending its valuation lower. After such a large fall, could it be worth buying, alongside another relatively unpopular share which released a trading update on Friday?
The company in question is support services and construction business Interserve (LSE: IRV). It released a third quarter update which showed that trading for the current financial year has been in line with expectations. Its Fit for Growth efficiency programme is on track to deliver its target of £15m savings in 2018, while year-end net debt is due to be between £625m and £650m. It expects to make a further announcement regarding its deleveraging plan in early 2019, with its balance sheet still appearing to be relatively weak.
The Interserve share price has fallen by over 50% in the last year, and is showing little sign of delivering a successful turnaround. It has been on a downward trend for a number of months, with a weaker outlook for the UK economy causing investors to become less interested in its turnaround potential. Since it’s highly-leveraged, relative to some of its sector peers, it could have an uncertain future. Therefore, its risk/reward ratio may not be appealing at the present time – especially since investors are somewhat cautious about the outlook for the wider stock market.
As mentioned, the Hurricane Energy share price has declined significantly in recent weeks. There could be further uncertainty in the near term, since the oil price has the potential to move lower, as fears regarding the world economy’s prospects may hold back investor sentiment. This could reduce investor interest in more speculative stocks within the oil and gas industry. And with Hurricane Energy currently loss-making, its shares could be hit harder in the short run than some of its industry peers.
However in the long run, the company appears to offer investment potential. It’s due to commence production in the first half of 2019, and this is expected to transform its financial performance. Its forward price-to-earnings (P/E) ratio using next year’s forecast earnings is around 14, which suggests that it may offer a margin of safety. And with a ramp-up in production expected over the medium term, it may be able to generate improving share price performance.
Of course, Hurricane Energy’s financial prospects are closely linked to the performance of the oil price. But for investors who are seeking a more speculative oil and gas stock, it could be worth a closer look, in my opinion.
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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.