What does WOR do?
Worley Parsons [ASX:WOR] is a project engineering, procurement and construction firm, providing services predominantly to the oil and gas sectors worldwide. The company relies on new project construction for much of its revenue. With the oil price collapse over the past few years, many projects have been shelved, effecting WOR’s business.
What’s happening to Worley Parsons’ share price?
Worley Parsons’ share price jumped nearly 10% today. The move comes on the back of oil prices rising to their highest level so far in 2016. Higher oil prices mean that many projects that have been deferred could get the go ahead in the future, and WOR stands to benefit from this trend.
But the market could be getting a little over-excited. There doesn’t seem to be a strong fundamental reason for oil prices to head back towards US$100 per barrel anytime soon. The global economy is soft and production levels are high.
Still, WOR’s share price has declined from over $30 in 2011 to under $4 earlier this year. Fundamentally it looks like decent value, trading on a forecast FY2017 P/E ratio of around 10 times and a dividend yield of nearly 8%. The high dividend yield reflects the uncertainty investors have about WOR achieving earnings expectations.
What now for WOR?
If this is a turning point, it will show up in the charts before you see it anywhere else. The chart below shows WOR’s share price over the past year. At first glance it looks like a turnaround is underway. That could be the case, but it’s still a little too early to make that call.
The initial rally from the lows of February is a positive. To confirm the rally, you really want to see the moving averages cross. That’s a sign that upward momentum is developing.
Right now, it’s too early to make that call. There is a risk that if the oil price rally fizzles out, WOR could turn back down from here. I’d suggest waiting for a few more weeks to see how this rally plays out.
Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.
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Editor, The Daily Reckoning