In the last year, the UKOG (LSE: UKOG) share price has fallen from 9p to 2p. That’s a decline of 78% in a relatively short time period, which is clearly very disappointing for the company’s investors.
Of course, over the same time period, the wider oil and gas sector has enjoyed an improved performance, with the oil price moving higher. As a result, it could be argued that the stock may enjoy a tailwind from improving investor sentiment over the medium term.
Looking ahead, the company could have turnaround potential. Could it therefore be worth buying alongside another possible recovery share that reported an improving performance on Thursday?
Turnaround potential
The company in question is retirement housebuilder McCarthy & Stone (LSE: MCS). It released an encouraging full-year trading update on Thursday, which showed it’s made progress in a tough year for the company. Revenue is expected to increase to £670m, from £661m in the previous year, with a 10% increase in the average selling price reflecting continued improvements in the sales mix.
The company continued to suffer from economic uncertainty, as well as a slower secondary market. This constrained volumes so that completions were down from 2,302 units in 2017 to 2,134 units in the 2018 financial year. A strategy review means that a more measured growth trajectory will be sought over the medium term, with the company seeking to smooth its workflow in order to create a more efficient business.
Looking ahead to the 2019 financial year, McCarthy & Stone is expected to report a rise in earnings of 3%. With the stock trading on a price-to-earnings (P/E) ratio of around 12, it could offer good value for money. While its near-term performance may disappoint, it seems to have a strong position in what could be a growing sector.
Uncertain outlook
Also offering turnaround potential is the UKOG share price. The company has continued to experience negative investor sentiment in recent months, and this trend could realistically continue in the short run. Since the company is presently generating relatively little revenue, it’s difficult to place an accurate valuation on its shares. That’s especially the case since its prospects remain uncertain in terms of production potential, while further fundraisings could dilute its shares yet further.
Despite this, the outlook for the wider oil and gas sector remains upbeat. Demand may increase at a faster pace than supply over the medium term, and this could mean that the 40% rise in the price of oil over the last 12 months will continue.
Therefore, an increasing number of investors may be willing to take risks on smaller operators which offer greater risk, such as UKOG. In the long run, the returns could be significant, although a volatile share price, which could move lower at times, seems likely after a challenging year for the business. For less risk-averse investors, the company could offer appeal over an extended time period.
