Small caps have greater torque to higher pricescompare to large caps !!!
Gran Tierra is well position to reach it's 52 week high with Q2 coming ! GL Longs
See below, an abstract of todays words from Josh Young !!!
Complete document and graphs here : https://bisoninterests.com/content/f/the-golden-age-of-oil-and-gas-producers
Good entry point !!! Only my O !
@BisonInterests white paper and thread out. Got small cap oil and gas producers? They could be the big winners from strong oil and gas prices here.
In the Golden Age of Oil and Gas Producers, one group stands out as particularly attractive for prospective investment: small cap oil and gas producers (E&Ps). A thread on valuation dislocations in small cap E&Ps and the associated investment opportunity.
(1/8) Share prices for small cap E&Ps have languished vs. large cap E&Ps (XLE) and the broader market (SPY) since the last oil cycle high in 2014, despite improving fundamentals in line with their large cap counterparts:
(2/8) In our previous white paper, The Golden Age of Oil and Gas Producers, we demonstrated that E&Ps are benefitting from structural cost reductions and increased capital efficiency, resulting in better margins in a similar oil price regime.
(3/8) And despite recent outperformance, sector valuation multiples have compressed as growth in profits exceeded that of share prices:
(4/8) As the oil bull market continues, small cap oil and gas equity multiples may revert to their long-term average levels. And being further away from their historical average valuations than larger caps, they have more upside performance potential moving forward. (5/8) This is supported by fundamentals: small caps have greater torque to higher prices, and in a rising commodity price environment, should undergo faster free cash flow growth than large caps. Assuming constant cash flow multiples, share prices should appreciate faster. (6/8) The markedly lower valuation multiples and material underperformance of small cap equities vs. large since 2014 are inconsistent with fundamentals, as indicated by the trajectory of their cash flow, adjusted for share count, over the same period: (7/8) Small caps have likely seen profitability improvements in line with their large cap counterparts, and significantly lower valuation multiples are unwarranted. If small cap E&P equities were to trade in line with large cap peers, this would imply significant upside. (8/8) As always, we're open to questions, comments and feedback. And you can read our full white paper here (please see the disclaimer at the bottom):