Is It Time To Consider Buying H2O Innovation Inc. (CVE:HEO)?

H2O Innovation Inc. (CVE:HEO), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the TSXV. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine H2O Innovation’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for H2O Innovation

Is H2O Innovation still cheap?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 17.11% above my intrinsic value, which means if you buy H2O Innovation today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth CA$1.92, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that H2O Innovation’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 kind of growth will H2O Innovation 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. With revenues expected to grow by a double-digit 18% over the next couple of years, the outlook is positive for H2O Innovation. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? HEO’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 track record of its management team. Have these factors changed since the last time you looked at the stock? 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 tabs on HEO, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of H2O Innovation.

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This article by Simply Wall St is general in nature. 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.
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