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Let’s talk about the popular Franco-Nevada Corporation (TSX:FNV). The company’s shares received a lot of attention from a substantial price movement on the TSX in the over the last few months, increasing to CA$99.41 at one point, and dropping to the lows of CA$86.61. 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 Franco-Nevada’s current trading price of CA$87.9 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Franco-Nevada’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. See our latest analysis for Franco-Nevada
Is Franco-Nevada still cheap?
Franco-Nevada appears to be overvalued 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 Franco-Nevada’s ratio of 63.99x is above its peer average of 10.23x, which suggests the stock is overvalued compared to the Metals and Mining industry. But, is there another opportunity to buy low in the future? Given that Franco-Nevada’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Franco-Nevada look like?
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. With profit expected to grow by 35.54% over the next couple of years, the future seems bright for Franco-Nevada. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in FNV’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe FNV should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.