AusNet Services Ltd (ASX:AST), a electric utilities company based in Australia, saw a double-digit share price rise of over 10% in the past couple of months on the ASX. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today I will analyse the most recent data on AST’s outlook and valuation to see if the opportunity still exists. See our latest analysis for AST
What is AST worth?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that AST’s ratio of 24.1x is trading slightly below its industry peers’ ratio of 25.7x, which means if you buy AST today, you’d be paying a reasonable price for it. And if you believe AST should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. In addition to this, it seems like AST’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because AST’s stock is less volatile than the wider market given its low beta.
Can we expect growth from AST?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at AST future expectations. Though in the case of AST, it is expected to deliver a negative earnings growth of -17.34%, 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? AST seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on AST, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on AST for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on AST should the price fluctuate below its true value.