With the price of Bitcoin continuing to fall, some investors may be considering how they could profit from its recent woes. The reality is, though, its lack of fundamentals mean it’s incredibly challenging to second-guess how the price will move over the short term.
In that respect, it’s not dissimilar to the oil price. It too has been highly volatile in recent months, and this situation could continue as its prospects remain uncertain. However, with shares such as Hurricane Energy (LSE: HUR) and Cairn Energy (LSE: CNE) offering improving financial forecasts, there appears to be a clearer path to growth than is the case for the virtual currency.
Hurricane Energy released an operational update on Monday, causing its share price to decline by around 3%. The company reported that during a buoy hook-up operation on 18 January, the rope used to pull it in became snagged and it wasn’t possible to complete the operation. The rope has now been freed and the buoy returned to its starting position.
As a result of an expected deterioration in operating conditions, the Aoka Mizu FPSO (floating production storage and offloading vessel) has returned to the Cromarty Firth to prepare for the next opportunity to pull in the buoy.
With the Hurricane Energy share price having fallen by around 20% from its level at the start of October 2018, it now has a forward price-to-earnings (P/E) ratio of around 16. This suggests that while there could be further uncertainty, delays and volatility ahead for the stock, its long-term growth prospects may be relatively appealing for less risk-averse investors.
One reason for the fall in the company’s share price has been the decline in the value of oil. This has also affected Cairn Energy in recent months, with its share price now trading 20% lower than it was in October.
Further volatility could be ahead, since uncertainty surrounding the world economy appears to be high. This could increase after recent news that the Chinese economy is growing at its slowest rate in 28 years. This could mean that demand growth for oil is lower than expected, and prices remain subdued even after their recent uptick.
With Cairn Energy expected to report improving profitability in the current year, it has a forward P/E ratio of around 9. This suggests that the stock could offer a wide margin of safety, and that a recovery may be on the cards over the long run. Since the business has a relatively appealing asset base and appears to have a sound strategy, which is expected to lead to rising profitability, its recent downturn could be a buying opportunity.
At the same time, Bitcoin’s woes may continue as investors adopt an increasingly risk-averse stance towards its prospects. As such, while the oil price may be difficult to predict, the valuations and growth outlooks of shares such as Hurricane Energy and Cairn Energy may make them more attractive investments than the virtual currency, 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.