Having fallen by 22% in the last two months, the outlook for the Petrofac Limited (LON:PFC) (PFC.L) share price may seem to be relatively uncertain. In the near term, I wouldn’t be surprised if it comes under further pressure, since investor sentiment towards the wider energy sector seems to be weak.
One reason for this could be the recent fall in the oil price. Brent has declined from $86 per barrel two months ago to trade at just $61 per barrel at the time of writing. That’s a major fall which was unexpected by many investors, with the sanctions waivers on Iranian oil exports seeming to take the market by surprise.
As a result of this, shares such as Petrofac and other oil and gas-related companies may have a less certain future. Demand growth for oil may also decline as the prospects for the world economy could come under pressure if US interest rates rise too quickly. The end product could be lower levels of profitability, investment and activity across the oil and gas industry.
Given that Petrofac is already expected to post EPS falls in the next two financial years, its financial prospects do not appear to be particularly positive at the moment. Even though its shares are relatively cheap and trade on a P/E ratio of around 7, I feel that investors may demand a larger margin of safety in response to the deteriorating prospects for the oil and gas industry.
That said, I remain optimistic about the long-term prospects for the sector. I feel that the world economy still has growth potential, and this could help to push the price of oil higher. But with other companies in the industry having EPS which is expected to grow in the medium term and competitive valuations, I believe there may be better opportunities than Petrofac available for me elsewhere.