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Is the Premier Oil share price the best-value stock in the FTSE 250?

While the FTSE 100 and FTSE 250 have made strong gains so far in 2019, a number of shares could still offer good value for money. Among them is mid-cap oil producer Premier Oil (LSE: PMO). Even though it has risen by 47% so far in 2019, it continues to trade on a low ratings multiple.

Therefore, could it be worth buying at the present time? Or, is another growth share that reported a positive trading update on Thursday more appealing for the long term?

Improving prospects

The company in question is home repairs and improvements business Homeserve (LSE: HSV). Its performance in the 2019 financial year has been encouraging, with its adjusted profit before tax expected to be at the upper end of market expectations.

In its Membership business, the company continues to grow strongly in the US, which helped to offset a decline in customer numbers in the UK. A group customer retention rate of 82% suggests that its performance has been relatively strong, with net income per customer continuing to rise.

In the company’s Home Experts division, revenue at Checkatrade increased by over 30%, while trades recruitment grew strongly. Consumer web visits increased, while a new management team could catalyse the performance of the division in the long run.

With Homeserve forecast to post a rise in its bottom line of 12% in the current year, it seems to have a bright future. However, with a price-to-earnings (P/E) ratio of 27, it appears to lack a margin of safety at the present time. Therefore, it may be a stock to avoid until such a time that it offers better value for money relative to the wider FTSE 250.

Low valuation

By contrast, the Premier Oil share price appears to offer excellent value for money. It trades on a P/E ratio of just 4, which suggests that investors are still unsure about its long-term financial prospects.

This, of course, is somewhat understandable. The company continues to have a relatively large amount of debt on its balance sheet, which means it may be a riskier proposition than some of its FTSE 100 and FTSE 250 sector peers. Although the oil price has moved significantly higher since the turn of the year, the industry’s outlook can quickly change as a result of poor economic data. Investors, therefore, may continue to price in a wide margin of safety over the medium term.

In response to what has been a difficult period pre-2019 for the oil price, Premier Oil has cut costs, increased production and started the process of reducing debt levels. Although there is still some way to go in this process, it is nevertheless making encouraging progress according to recent updates released by the company. They show that its cash flow is moving higher, while net debt is moving lower.

While the company may be risky relative to the wider FTSE 250, it could offer high rewards over the long run as a result of its low valuation. For less risk-averse investors, it may be an appealing investment opportunity.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Homeserve. 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.