How BG Group Measures up as a GARP Investment
LONDON -- A popular way to dig out reasonably priced stocks with robust growth potential is through the "Growth at a Reasonable Price", or GARP, strategy. This theory uses the price-to-earnings to growth (PEG) ratio to show how a share's price weighs up in relation to its near-term growth prospects -- a reading below 1 is generally considered decent value for money.
Today I am looking at BG Group to see how it measures up.
What are BG Group's earnings expected to do?
Source: Digital Look
City analysts expect BG Group to post a modest earnings dip in 2013 following three years of consecutive growth. But earnings expansion is expected to resume with gusto next year.
The oil operator's expected earnings slip this year results in an invalid PEG rating, although this ratio is anticipated to ride into bargain territory in 2014. The firm's price-to-earnings (P/E) ratio meanwhile is expected to remain above 10 for this year and next -- a reading below this is generally considered decent value for money.
Does BG Group provide decent value against its rivals?
Oil and Gas Producers
Prospective P/E Ratio
Prospective PEG Ratio
BG Group currently outperforms both the FTSE 100 as well as its oil and gas counterparts on a P/E basis. Still, the firm's projected earnings drop this year leaves it lagging behind both groups in terms of prospective PEG ratio.
Despite earnings difficulties during the current year, a situation that undermines its position as a potential GARP selection, I reckon that investors should realize sound rewards in coming years as operations at its lucrative assets are ratcheted up several notches.
Oil production expected to surge from 2014
The company has a spate of new oil fields due to come online shortly, from the U.K. to Norway, Thailand to Trinidad. In particular, BG Group's gigantic Queensland Curtis LNG facility is due to commence pumping as of the beginning of 2014, while production at its offshore assets in Brazil is also picking up the pace.
Indeed, broker Liberum Capital expects group production to advance 15% per year in both 2014 and 2015, to 728 million barrels of oil equivalent per day and 841 million barrels of oil equivalent per day respectively.
BG Group faces the very real prospect of continued oil price volatility and increasing capex costs which continue to beset the entire oil industry. But I believe that an expected surge in production volumes from next year onwards should still drive earnings skywards despite these issues.
There's gold in them there wells
BG Group -- like all natural resources plays -- comes attached with a heightened risk profile. Drilling for oil and minerals mining is often a 'hit and miss' business where the timing, and indeed quantities, of potential payloads are extremely unpredictable.
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The article How BG Group Measures up as a GARP Investment originally appeared on Fool.com.Fool contributor Royston Wild has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.