When it comes to stock price drops, Tullow Oil (TLW) has been pretty rough in recent years.
Tullow Oil’s share price is down around 90% over the past 10 years and year to date, while other oil companies have prospered, Tullow has only risen 2.1 % and fell 13% last month. Why the low comparative performance? And what is he doing to turn the tide?
First, let’s look at the performance issue. The publicly traded, London-based oil company focuses on oil and gas exploration, development and production activities primarily in Africa and South America.
Falling oil prices in general (and in particular in 2015/16) as well as a costly confrontation with the Ugandan government over oilfield projects and tax disputes, have hit Tullow’s share price hard and debts have piled up – so far the recovery has nothing to do with it. write home.
Ten years ago Tullow’s share price stood at 1,271.4 pence; but just before Covid took over the world in mid March 2020 the price had fallen to 9p. It has since recovered moderately with some dips along the way to a current level around 48p.
Positives for the Tullow Oil share price
With no signs of an end to tensions in Ukraine and oil supplies looking scarce for quite a while yet, does Tullow Oil seem like a reasonable bet for investors?
There are a few potential positives. City watchers will be delighted to see how Tullow Oil’s recent merger with Capricorn Energy (formerly Cairn Energy) (CNE.L) unfolds and if successful in reducing costs and improving cash flow to enable investments in higher production
JP Morgan analysts certainly see reason for optimism – they recently set a price target of 82p.
And Tullow Oil receives a moderate buy consensus rating from Marketbeat. The company’s average rating is based on four buy ratings, four hold ratings, and no sell ratings.
Simply Wall St rates Tullow as good value based on its price to sales ratio (0.7x) compared to the peer average (3.5x). He considers Tullow’s fair value price to be 158p – essentially 69.2% undervalued.
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Balancing risk and reward
However, due to its level of debt, Simply Wall St rates Tullow Oil 2/6 on financial health.
There are obviously risks with an investment in Tullow, not just its existing debt levels, but the possible collapse of oil prices at some point – given that the current supply pressures are geopolitically driven. .
Tullow Oil may not even survive if oil prices fall to levels seen in the recent past.
But with oil prices only going one way at the moment, investors can factor in broker ratings and buy, even if it’s just a short-term position.