We can compare Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) to other shale-focused energy companies including Kodiak Oil & Gas (NYSE:KOG), Northern Oil & Gas, Inc. (NYSE:NOG), Oasis Petroleum Inc. (NYSE:OAS), and Continental Resources, Inc. (NYSE:CLR). All of these companies have been reporting high revenue growth: in each case sales were up at least 30% in their most recent quarter compared to the same period in the previous year. Analysts are generally expecting earnings to rise strongly as well with five-year PEG ratios below 0.5. Northern is the cheapest of these in terms of trailing earnings with a P/E of only 11, and therefore the least dependent on bottom-line improvements. Even though short sellers are particularly excited about it, responsible for 21% of the float, it might be worth looking into along with the rest of these peers. We would note that we recently covered an insider purchase at Continental, the largest of these companies by market capitalization. Continental trades at 11 times forward earnings estimates, which is actually a small premium to these other companies.
We think that shale oil and gas looks like a good opportunity for “growth at a reasonable price.” Trailing P/Es are outside of value territory, but individual companies are seeing high revenue growth and high earnings growth at least in the case of Carrizo Oil & Gas, Inc. (NASDAQ:CRZO). In general hitting analyst expectations for 2014 would put these companies in a position to be undervalued if they continued growing at all beyond that point, and certainly in terms of the PEG ratio there is latitude to underperform consensus overall. As such we think that Carrizo and its peers are worth further research, though investors should be sure not to put too much of their portfolio in energy.
Disclosure: I own no shares of any stocks mentioned in this article.