Hurricane Energy plc (AIM:HUR), an energy company based in United Kingdom, saw a decent share price growth in the teens level on the AIM over the last few months. As a 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 HUR’s outlook and valuation to see if the opportunity still exists. Check out our latest analysis for Hurricane Energy
What is HUR worth?
According to my relative valuation model, HUR seems to be currently fairly priced. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that HUR’s ratio of 1.2x is trading slightly above its industry peers’ ratio of 0.7x, which means if you buy HUR today, you’d be paying a relatively reasonable price for it. And if you believe that HUR should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Furthermore, it seems like HUR’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because HUR’s stock is less volatile than the wider market given its low beta.
Can we expect growth from HUR?
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. However, with an extremely negative double-digit change in profit expected next year, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for HUR, at least in the near future.
What this means for you:
Are you a shareholder? Currently, HUR appears to be trading around its fair value, 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 HUR, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on HUR for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems 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 HUR should the price fluctuate below its true value.