Laramide Resources Ltd (TSX:LAM), 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$0.34 at one point, and dropping to the lows of CA$0.24. 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 LAM’s current trading price of CA$0.25 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 LAM’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. See our latest analysis for LAM
What is LAM worth?According to my relative valuation model, LAM 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 LAM’s ratio of 0.4x is trading slightly below its industry peers’ ratio of 1.5x, which means if you buy LAM today, you’d be paying a relatively reasonable price for it. And if you believe that LAM should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since LAM’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much LAM moves relative to the rest of the market.
What does the future of LAM 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. 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 LAM, at least in the near future.
What this means for you:
Are you a shareholder? Currently, LAM 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 LAM, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on LAM for a while, now may not be the most advantageous 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. In addition to this, 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 gel your views on LAM should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Laramide Resources. You can find everything you need to know about LAM in the latest infographic research report. If you are no longer interested in Laramide Resources, you can use our free platform to see my list of over 50 other stocks with a high growth potential.