Galaxy Resources Limited (ASX:GXY), a materials company based in Australia, led the ASX gainers with a relatively large price hike in the past couple of weeks. 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. However, could the stock still be trading at a relatively cheap price? Let’s examine GXY’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. Check out our latest analysis for Galaxy Resources

What's the opportunity in GXY?

The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 18.1x is currently trading slightly below its industry peers’ ratio of 19.3x, which means if you buy GXY today, you’d be paying a reasonable price for it. And if you believe GXY should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. In addition to this, it seems like GXY’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 GXY’s stock is less volatile than the wider market given its low beta.

What kind of growth will GXY 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. GXY’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? GXY’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 GXY? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on GXY, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for GXY, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.