Delphi Energy Corp (TSX:DEE), an energy company based in Canada, received a lot of attention from a substantial price movement on the TSX in the over the last few months, increasing to CA$1.33 at one point, and dropping to the lows of CA$1.11. 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 DEE’s current trading price of CA$1.16 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 DEE’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 Delphi Energy
What’s the opportunity in DEE?According to my relative valuation model, DEE seems to be currently fairly priced. I’ve used the price-to-book ratio in this instance because there’s not enough visibility to forecast its cash flows, and its earnings doesn’t seem to reflect its true value. The stock’s ratio of 1.1x is currently trading slightly below its industry peers’ ratio of 1.5x, which means if you buy DEE today, you’d be paying a relatively fair price for it. And if you believe that DEE 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 DEE’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 DEE look like?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. With revenues expected to grow by 76.02% over the next year, the future seems bright for DEE. If the level of expenses is able to be maintained, it looks like higher cash flows is on the cards for the stock in the upcoming year, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in DEE’s positive outlook, 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 DEE? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping an eye on DEE, 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 DEE, 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Delphi Energy. You can find everything you need to know about DEE in the latest infographic research report. If you are no longer interested in Delphi Energy, you can use our free platform to see my list of over 50 other stocks with a high growth potential.