Is the Premier Oil share price still good value?

Mid cap Oil & Gas explorer and producer Premier Oil (LON:PMO)has seen its share price recover on the back of a stabilising oil price and a well received recent trading update - but by many conventional measures, its stock is still cheap.

Stacks of academic research covering different time frames and regions of the world all come to the same conclusion: over time and on average, cheap stocks outperform expensive stocks.

One of the masters of value (and factor) investing is Jim O'Shaughnessy, the founder of O’Shaughnessy Asset Management (OSAM). In the 4th edition of his groundbreaking investment research tome What Works on Wall St, O’Shaughnessy showed that composite value factors based on a mix of metrics dramatically beat the market over a multi-decade period.

It was from this robust insight that Stockopedia’s Value Rank was born, its synergy coming from the following simple valuation ratios:

• Price to Book Value
• Price to Earnings
• Price to Free Cash Flow
• Dividend Yield %
• Price to Sales
• Earnings Yield %

How does Premier Oil stack up?

Premier Oil's Value Rank

We can see by using Premier Oil’s StockReport that the group has a:

• Rolling price to book value of 1.03,
• Rolling price to earnings ratio of 12.0
• Trailing twelve-month price to free cash flow of 2.37
• Rolling dividend yield of 0.000%
• Trailing twelve-month price to sales ratio of 0.75

When we add all of these together, we find that Premier Oil has a Value Rank of 82. Investing in high-value stocks requires finesse and a sturdy constitution but, when cheap stocks come good, the payoff can be large and sudden.

Premier Oil’s Value Rank of 82 puts it in the cheapest quartile of the stock market. That is certainly a promising jumping off point for our analysis but it is not the whole story.

A smarter way to invest in value stocks is to find the best quality value stocks or value stocks whose share prices are turning around - history shows that you can do much better than a passive investor by combining factors, so it makes sense to consider Premier Oil’s Value Rank alongside its Momentum and Quality Ranks. You can see these Ranks on the group's StockReport page.

What does this mean for potential investors?

Some of the best quality stocks in the market have defensible models that can deliver high levels of shareholder returns over the long term. But there are no guarantees and it's important to do your own research. Indeed, we've identified some areas of concern with Harbour Energy that you can find out about here.