Obsidian Energy Ltd (TSX:OBE), an energy company based in Canada, received a lot of attention from a substantial price increase on the TSX in the over the last few months. Less covered, small-stocks like OBE sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could OBE still be trading at a low price relative to its actual value? Let’s take a look at OBE’s outlook and value based on the most recent financial data to see if the opportunity still exists. Check out our latest analysis for Obsidian Energy
What is OBE worth?The stock seems fairly valued at the moment according to my relative valuation model. 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 0.3x is currently trading slightly below its industry peers’ ratio of 1.6x, which means if you buy OBE today, you’d be paying a relatively fair price for it. And if you believe that OBE 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 OBE’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 OBE moves relative to the rest of the market.
What kind of growth will OBE generate?Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 a relatively muted revenue growth of 7.37% expected in the upcoming year, short term growth doesn’t seem like a key driver for a buy decision for OBE.
What this means for you:
Are you a shareholder? It seems like the market has already priced in OBE’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 OBE? 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 OBE, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for OBE, 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 Obsidian Energy. You can find everything you need to know about OBE in the latest infographic research report. If you are no longer interested in Obsidian Energy, you can use our free platform to see my list of over 50 other stocks with a high growth potential.