How to value oil and gas related companies | The Investment Quadrant by The Fifth Person

Questions › Category: Valuation Quadrant › How to value oil and gas related companies

alexyeo asked 3 years ago

Hi Trainers, I know we should avoid oil and gas companies as they tend to have lumpy earnings and the business model is hard to understand. But is there a way to value them ? P/b or perhaps p/cf? Or things to take note?

1 Answers

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Victor Chng answered 3 years ago

Hi Alex,

You can either use their PB ratio or use average earnings multiply by average PE to get their valuation.

ashz replied 3 years ago

if PB ratio, what ratio are we looking at?

Victor Chng replied 3 years ago

Hi Ashz, what do you mean by “what ratio are we looking at” because PB is a ratio by itself

ashz replied 3 years ago

as in, what is the number? 0.5? or 0.8?

Jieren Zheng replied 3 years ago

I would think you have to look at similar companies or the company’s historical pricing. But do note the cyclical nature.

Jieren Zheng replied 3 years ago

*historical valuation (PB)

Victor Chng replied 3 years ago

Hi Ashz,

There is no fixed number to it. As what Jieren had mentioned it is based on similar company average and the own company average.

Thanks JR

Jieren Zheng replied 3 years ago

welcome :)