What Does Origin Energy Limited's (ASX:ORG) Share Price Indicate?

Let's talk about the popular Origin Energy Limited (ASX:ORG). The company's shares saw a double-digit share price rise of over 10% in the past couple of months on the ASX. The company is now trading at yearly-high levels following the recent surge in its share price. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today we will analyse the most recent data on Origin Energy’s outlook and valuation to see if the opportunity still exists.

Our free stock report includes 2 warning signs investors should be aware of before investing in Origin Energy. Read for free now.

What Is Origin Energy Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Origin Energy’s ratio of 13.36x is trading slightly below its industry peers’ ratio of 15.72x, which means if you buy Origin Energy today, you’d be paying a decent price for it. And if you believe that Origin Energy should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, Origin Energy’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Check out our latest analysis for Origin Energy

What kind of growth will Origin Energy generate?

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 the company's future expectations. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Origin Energy, at least in the near future.

What This Means For You

Are you a shareholder? Currently, ORG appears to be trading around industry price multiples, 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 ORG, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ORG for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This 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 ORG should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Origin Energy at this point in time. For example, we've found that Origin Energy has 2 warning signs (1 makes us a bit uncomfortable!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Origin Energy, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.