2 reasons why I think the Genel share price could outperform the FTSE 100

Arrowings ascending on a chalkboard
Arrowings ascending on a chalkboard

Fears surrounding the prospects for the world economy have caused a decline in the FTSE 100 in recent months. The potential for a rising US interest rate, as well as a full-scale trade war, have meant that investors have become increasingly cautious about the outlook for a number of shares.

As such, valuations could be relatively low, while the performance of some industries could still be impressive. With that in mind, I feel oil producer Genel Energy(LSE: GENL) could offer growth potential alongside another energy company which released an update on Monday.

Future potential

The company in question is energy storage and clean fuel business ITM Power(LSE: ITM). It released a trading update to coincide with its AGM, with the company’s trading in the current year having started well. It expects another year of significant financial progress, with underlying project delivery being on track and its financial position being strong. It has £16.9m of cash, while it has a total pipeline of £34.3m. This represents an increase in the size of its pipeline of £3.7m since August, with the non-contracted tender opportunity pipeline being £200m.

The company’s planned move to its new factory is progressing well. It is expected to sign terms in the first quarter of 2019. The new factory should to run in parallel to the existing one until the lease runs out in 2021. During that time it is expected to provide sufficient capacity to support its ambitious sales growth plan. As a result, the stock could offer an improving outlook. While still loss-making and potentially risky, its long-term growth potential could improve as consumers continue to demand cleaner forms of energy.

Value for money

As mentioned, share prices have fallen in recent months. Although Genel Energy is down by 25% since May, its shares are still up by 90% over the last year. The outlook for the oil and gas sector may be relatively uncertain, with the prospect of a slowing world economy unlikely to have a positive impact on demand. But with geopolitical risks in countries such as Saudi Arabia and Iran, there could be a commensurate decline in supply over the medium term. As such, the outlook for the industry may be volatile, but also positive over the next few years.

Although Genel Energy’s shares have risen significantly in the last year, they continue to offer good value for money. The company trades on a price-to-earnings (P/E) ratio of around 6. And with its operational performance having the potential to improve, I feel it could offer further capital growth prospects over the medium term.

Certainly, the company’s shares could record further losses if fears surrounding the global economy persist. The oil price has a track record of being volatile, which could lead to a wider margin of safety being applied to its shares. But with a low rating and the prospect of supply disruption in the wider industry, the company’s shares could perform well versus the FTSE 100.

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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.