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Public Joint-Stock Company Lenenergo (MCX:LSNG), which is in the electric utilities business, and is based in Russia, had a relatively subdued couple of weeks in terms of changes in share price, which continued to float around the range of RUB5.59 to RUB6.08. However, is this the true valuation level of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Lenenergo’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 Lenenergo
Is Lenenergo still cheap?
According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 4.61x is currently trading slightly below its industry peers’ ratio of 7.08x, which means if you buy Lenenergo today, you’d be paying a reasonable price for it. And if you believe Lenenergo should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. So, is there another chance to buy low in the future? Given that Lenenergo’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Lenenergo generate?
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. 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 expected decline of -2.5% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Lenenergo. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Currently, LSNG 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 de-risk 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 LSNG, take a look at whether its fundamentals have changed.