Cooper Energy Limited (ASX:COE), an energy company based in Australia, received a lot of attention from a substantial price movement on the ASX in the over the last few months, increasing to $0.36 at one point, and dropping to the lows of $0.27. 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 COE's current trading price of $0.27 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 COE’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. View our latest analysis for Cooper Energy
Is COE still cheap?
According to my relative valuation model, COE 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 COE’s ratio of 1.1x is trading slightly below its industry peers’ ratio of 1.2x, which means if you buy COE today, you’d be paying a relatively fair price for it. And if you believe that COE should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that COE’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 does the future of COE look like?
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 COE future expectations. With revenue expected to more than double in the next few years, the future appears to be extremely bright for COE. If expenses can also be maintained, 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? COE’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 COE? Will you have enough confidence to invest in the company should the price drop below its fair value?