The last year has been exceptional for the energy industry due to higher oil prices boosting profitability. Suncor Energy (TSX: SU)(NYSE: SU) is among energy stocks that have generated substantial cash flows at better profit margins due to higher crude oil prices and demand in the post-pandemic era.
As of this writing, Suncor stock trades for $45.09 per share, up by 36.02% year to date. A pullback across the board in recent weeks has seen its share prices decline by almost 16% from its 52-week high, but it is still up by 90.66% year over year.
All this growth might make it seem like an attractive growth stock to buy and hold for the long term. However, calling it a growth stock, despite its stellar growth in the last 12 months, could be considered a far-reaching statement. Let’s discuss why you should not treat it as a growth stock.
Historical performance
Before I say anything, you should remember that past performance does not predict future returns. Reviewing a company’s past performance only provides a frame of reference for how it has previously performed to inform you on what you can expect. It does not predict what will happen in the future, even if there seems to be a pattern.
Suncor’s historical performance has been good, but it hardly qualifies as a growth stock. Suncor stock is up by 220.24% since August 2002. Those are decent returns, but there have been several ups and downs for the oil sands giant.
Grim long-term outlook
Considering the changing energy landscape, the company’s historical performance for the last 20 years might not hold much relevance in the next two decades. Governments worldwide are emphasizing a shift to a greener future. ESG (environmental, social, and governance) investments will likely become more commonplace, as fossil fuels are gradually phased out.
Traditional energy companies relying primarily on fossil fuels might remain profitable for the foreseeable future. However, the world will likely shift entirely to clean energy.
Starting newer projects might not be profitable for Suncor in the long run. It has a strong balance sheet and is well capitalized right now. Still, the company may need to shift its business model and incorporate renewable energy assets to prepare for the future.
Foolish takeaway
If you own Suncor stock right now, I am not telling you to exit your position in the stock and look elsewhere. Rising oil and gas prices might drive more profitability for Suncor stock and its peers for the next several years. You may get substantial returns on your investment in the stock in the short to medium term. It is the long-term growth potential you need to worry about.
The company has recently been facing operational and safety issues that could lead to further short-term problems for Suncor. If you are looking for investments in the energy sector, you could consider investing in other integrated energy companies for this purpose to mitigate potential losses.
