Should I Buy Petrofac?

I'm window shopping for shares again, and there are plenty of goodies for sale. Should I pop Petrofac  (LSE: PFC  ) into my basket?

Just the 'facs
These are tough times for oil stocks, with Brent crude falling below $100 a barrel on fears of a China and U.S. slowdown and weak demand from Europe. Oil services company Petrofac looked cheap last month, when you could buy it for around £15. Today, you would pay just £13.40. Is this a great time to buy?

Petrofac's share price is now down a meaty 20% over the last three months, despite signing a couple of lucrative contracts in April. Last week, it announced it had won the lion's share of a $3.7 billion deal to develop oil fields for the Abu Dhabi National Oil Company. That followed a $500 million contract from the Abu Dhabi Marine Operating Company. My suspicions that Petrofac is being unfairly punished by a wider market sell-off were confirmed by its recent full-year results, which revealed a 17% rise in profits, neatly matched with a 17% dividend hike.

Profits in the pipeline
Management was bullish about the future, claiming that Petrofac's strong pipeline of future projects supported the bottom line. Group chief executive Ayman Asfari was happily throwing out heart-warming phrases such as "another year of strong financial results and good operational performance", "our portfolio of existing products is in excellent shape", and "new and attractive opportunities across our business". Yet the company is 25% off its 52-week high. What are you waiting for?

Naturally, there are risks. Petrofac does a lot of its business in the Middle East and North Africa, and recent political turbulence may have contributed to its shaky shares. As we have seen, it is exposed to shifts in the oil and gas price. But these are macro rather than micro concerns, the company itself is in good shape. That said, continuing negative sentiment could still force the oil (and Petrofac's share price) lower still.

That Petro emotion
Right now, you can buy Petrofac for a modest 11 times earnings. Its price/earnings to growth (PEG) ratio is similarly undemanding at 0.7. City forecasts put earnings-per-share growth at a decent 9% this year and 13% in 2014. You get a yield of 3.2% underpinned by a progressive dividend policy, which puts it on a forecast 3.7% for 2014. Return on capital employed is a generous 44%. Petrofac is winning new projects, has a $11.8 billion order backlog, and a queue of bidding opportunities. I often say, I'd love to buy a particular stock following a share price dip. Well, Petrofac has dipped. These are turbulent times, and it may dip further still. But to me, it looks like a buy.

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