Does Tullow Oil plc’s 9% share price rise in 2019 suggest a recovery is taking hold?

Could Tullow Oil plc (LON:TLW) (TLW.L) offer turnaround potential?

Tullow Oil plc
Tullow Oil plc

The share price of Tullow Oil plc (LON:TLW) (TLW.L) has risen by around 9% since the start of the year. This is an encouraging performance in my view, and comes at a time when the oil price has also pushed northwards.

Of course, the prices of black gold and the oil producer have only made gains over a handful of trading sessions. Therefore, I feel it is simply too early to determine that this is the start of a successful recovery.

In the near term, I wouldn’t be surprised if there is heightened volatility for the oil price. There is uncertainty regarding the outlook for the world economy, with rising US interest rates and a potential slowdown in China causing investor confidence to waver. This situation could be exacerbated by the prospect of a trade war, as well as uncertainty regarding supply growth after waivers on Iranian sanctions were put in place.

Therefore, I view Tullow Oil as a high-risk share at the moment. Its market value could move sharply in either direction in the near term.

In the long run, though, I’m optimistic about its recovery potential. Its strategy is focused on increasing production, and this seems to be working well. It is due to post a rise in EPS of 11% in the current year. Sure, this will be impacted by the prevailing oil price, but nevertheless the company may be able to make further progress on reducing its debt pile in order to create a more stable business over future years.

With Tullow Oil having a P/E ratio of around 9, I feel that the company could offer a margin of safety at the moment. As a long-term investor who doesn’t mind volatility or uncertainty in the short run, the stock appeals to me – particularly since I’m bullish on the prospects for oil. But it remains a risky proposition in my eyes.

About Robert Stephens 5430 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email or use one of the other contact methods available on the 'Contact Us' page