Metro Mining Limited (ASX:MMI), an energy company based in Australia, saw significant share price volatility over the past couple of months on the ASX, rising to the highs of A$0.31 and falling to the lows of A$0.23. 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 Metro Mining’s current trading price of A$0.23 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 Metro Mining’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 Metro Mining
Is Metro Mining still cheap?
According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-book ratio in this instance because there’s not enough visibility to forecast its cash flows, and its earnings doesn’t seem to reflect its true value. The stock’s ratio of 2.55x is currently trading slightly above its industry peers’ ratio of 1.46x, which means if you buy Metro Mining today, you’d be paying a relatively reasonable price for it. And if you believe that Metro Mining should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. In addition to this, it seems like Metro Mining’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 the stock is less volatile than the wider market given its low beta.
What kind of growth will Metro Mining generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 the company’s future expectations. In Metro Mining’s case, its revenues over the next couple of years are expected to double, indicating an incredibly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? MMI’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at MMI? Will you have enough conviction to buy should the price fluctuates below the true value?