Iluka Resources Limited (ASX:ILU), a metals and mining company based in Australia, saw a decent share price growth in the teens level on the ASX over the last few months. 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? Let’s examine ILU’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. View our latest analysis for Iluka Resources
Is ILU still cheap?
The stock is currently trading at $9.87 on the share market, which means it is overvalued by 60% compared to my intrinsic value of $6.17. This means that the buying opportunity has probably disappeared for now. Another thing to keep in mind is that ILU’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 ILU 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 ILU, it is expected to deliver a relatively unexciting top-line growth of 8.15% in the next few years, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for ILU, at least in the near term.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in ILU’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 ILU 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.
Are you a potential investor? If you’ve been keeping an eye on ILU for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for ILU, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.