While the oil and gas industry has a track record of volatility, shares such as Tullow Oil (LSE: TLW) could offer superior risk/reward opportunities than the National Lottery. Certainly, a fall in the oil price could lead to challenges for the company. However, with a low valuation and what seems to be a sound strategy, it could boost an investor’s chances of improving their financial position in the long run.
Alongside another growth stock which trades on a low valuation and that reported an encouraging update on Thursday, Tullow Oil could be worth buying right now.
The company in question is media distribution specialist Entertainment One (LSE: ETO). Its trading update for the 2019 financial year showed that its financial performance has been in line with expectations, with underlying EBITDA (earnings before interest, tax, depreciation and amortisation) rising by 25% in its Family & Brands division.
It also recorded another year of growth in its Music segment, while its Television sector saw strong momentum during the year. it was boosted by both new and recommissioned series, with it having a robust pipeline of over 60 projects set up for development.
Entertainment One is upbeat about its future prospects. The company is expected to post a rise in net profit of 16% in the current year, with its price-to-earnings growth (PEG) ratio of 1 suggesting that it offers a wide margin of safety. As such, now could be a good time to buy it, as it offers share price growth potential over the long run.
As mentioned, the risk/reward ratio for Tullow Oil may be favourable at the present time. Clearly, the prospects for the oil price continue to be uncertain, and falls in the price of black gold could harm the company’s financial outlook. With the US continuing to offer mixed economic data and China doing likewise, the prospects for the global economy appear to be uncertain in the near term. This could mean that the rise in the oil price over the first quarter of the year may not be sustained at the same level in the second or third quarters.
Despite this risk, the Tullow Oil share price appears to offer investment appeal. The company is in the process of delivering its refreshed strategy. This focuses on increasing production, reducing debt levels and investing for future growth. As such, it could offer a relatively strong performance outlook versus the wider sector.
Since the stock trades on a price-to-earnings (P/E) ratio of 11.3, it seems to offer a wide margin of safety. This could indicate that the risks it faces are priced in, with it seeming to have a bright future should the price of oil continue to move higher. As such, from a risk/reward perspective it could be an appealing stock which offers significant growth potential, and that helps its investors to improve their financial prospects over time.
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.