Despite being one of the most shorted shares on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), mining services company Monadelphous Group Limited (ASX: MND) was one of the best performers last year with a stunning 83% rise.
The majority of these gains were made in the second half of the year after talk of production cuts by OPEC helped take oil prices off their lows.
At the end of the year these proposed production cuts became a reality, so will there be more of the same for Monadelphous shareholders in 2017?
Whilst rising oil and gas prices can only be good news for the company, it may still be some time until we see a significant increase in mining capital expenditure for the company to capitalise on.
In fact, at its annual general meeting in November, management advised that it expects market conditions in the resources and energy sectors to remain challenging for the foreseeable future.
Furthermore, they expect the company's margins to continue to remain under pressure. Monadelphous' margins have narrowed significantly in the last few years as competition with the likes of Worleyparsons Limited (ASX: WOR) increases for a smaller pool of work.
With its shares changing hands at around 16x full year earnings, I believe the Monadelphous share price has little upside left in it unless oil prices rocket higher in 2017.
Unfortunately I'm reasonably pessimistic on oil prices and expect increased production in the United States will offset any cuts by OPEC. In light of this I wouldn't expect to see the Monadelphous share price recreate last year's gains and would suggest investors focus elsewhere in the market.
Even if you are bullish on oil prices I wouldn't necessarily invest in Monadelphous. There are far better oil plays such as Santos Ltd (ASX: STO) that I would place ahead of it.
