New Hope Corporation Limited (ASX:NHC), an energy company based in Australia, received a lot of attention from a substantial price movement on the ASX in the over the last few months, increasing to A$2.62 at one point, and dropping to the lows of A$2.21. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether New Hope’s current trading price of A$2.39 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at New Hope’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for New Hope
What’s the opportunity in New Hope?
The stock is currently trading at AU$2.39 on the share market, which means it is overvalued by 31% compared to my intrinsic value of A$1.82. This means that the buying opportunity has probably disappeared for now. Another thing to keep in mind is that New Hope’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
What kind of growth will New Hope generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of New Hope, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? If you believe NHC is currently trading above its value, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the uncertainty from negative growth in the future, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on NHC for some time, now may not be the best time to enter into the stock. Price climbed passed its true value, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?