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Is the Genel share price a bargain or should I buy this FTSE 250 turnaround stock?

It’s been a difficult two months for shares in oil and gas companies such as Genel (LSE: GENL). The oil producer has recorded a decline in its share price of over 25% since the start of October, with a falling oil price being at least partly responsible. And with the price of black gold showing little sign of mounting a comeback, further uncertainty could be ahead for the stock and its sector peers.

However, could this therefore be the perfect time to buy the company? Or does a FTSE 250 share which reported upbeat news on Thursday offer stronger recovery potential?

Low valuation

The company in question is transport business Go-Ahead (LSE: GOG). It released a trading update for the period from 1 July to 28 November 2018, with it on track to meet expectations for the full year. It has recorded growth in passenger volumes, as well as revenues for the regional bus division. Its London bus operations have continued to generate strong Quality Incentive Contract income through the delivery of good service performance.

In rail, the company has seen a significant improvement in the operational performance of GTR, while Southeastern has continued to perform relatively well. In fact, it has consistently been the best-performing large train franchise in the UK. A new rail contract in Norway and the start of bus operations in Dublin have helped to boost the company’s international performance.

Following a share price fall of 18% since April, Go-Ahead has a price-to-earnings (P/E) ratio of around 9.7. This suggests that the stock could offer a margin of safety and may be able to deliver a successful turnaround over the long run.

Uncertain future

As mentioned, the oil price has experienced a significant decline in the last couple of months. After rising from $30 per barrel at the start of 2016 to reach $86 per barrel at the start of October 2018, it has experienced a hugely disappointing period that has seen it sink to $58 per barrel. Investors appear to have been expecting a sharp reduction in supply which is unlikely to now appear after the US granted waivers to sanctions for eight countries which import oil from Iran.

As such, the fall in the oil price could realistically continue in the coming months, since the waiver lasts for six months. This could put Genel’s share price under even more pressure, and may mean that investors experience continued paper losses.

Clearly, in such a situation it is hugely challenging to find the bottom of the company’s share price fall. At the present time, Genel has a P/E ratio of around 5. This suggests that it offers a margin of safety. Looking ahead, there is scope for declining levels of profitability over the next couple of years, since the company’s financial prospects are dependent upon the oil price. But with what seems to be a low valuation, it could be of interest for less risk-averse investors.

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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.