If an investor is searching for an ASX energy share to invest in, they are spoilt for choice in the Australian share market. The ASX is home to dozens of oil and gas shares. The largest, of course, is Woodside Energy Group Ltd (ASX: WDS). But does the Woodside share price represent the best choice right now?
When comparing different companies in the same sector, it can be especially useful to compare how the different options are valued. This is particularly so when it comes to energy and resources stocks. Since oil shares are all basically selling the same product at the same price (crude oil), a successful investment hinges more than most on what valuation you buy the shares at in the first place.
The best metric to use in this scenario is arguably the price-to-earnings (P/E) ratio. The P/E ratio compares what investors are paying for each dollar of earnings a company brings in. As such, it is specifically useful in comparing different companies in the same industry.
Oil is a difficult sector to analyse though. The profits of oil companies like Woodside are notoriously cyclical, thanks to the cyclicality of oil prices themselves. Over just the past 12 months, West Texas Intermediate (WTI) crude has traded between US$67 a barrel and US$94 a barrel. That's a difference of 40%.
Imagine what this volatility does to an oil company's profits over time. As such, old companies' P/E ratios tend to bounce around a lot, particularly compared to other ASX shares in different sectors.
However, all oil companies have to deal with the same oil price fluctuations. As such, the P/E ratio is still a useful metric to use in this case.
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How does the Woodside share price compare to other ASX energy shares today?
Right now, the Woodside share price is trading with a P/E ratio of 6.25.
Let's see how that compares against other ASX oil shares.
At present, Woodside's oil-producing rival Beach Energy Ltd (ASX: BPT) is trading with a P/E ratio of 9.25.
Santos Ltd (ASX: STO) shares are sitting on a P/E ratio of 9.48 right now.
And Karoon Energy Ltd (ASX: KAR) is on an earnings multiple of 5.68.
So right now, it does appear that Woodside shares are amongst the cheapest on the ASX compared with the company's peers. That's something investors should certainly keep front of mind if they are shopping for some ASX energy exposure right now.
