What Does Advantage Oil & Gas Ltd's (TSE:AAV) Share Price Indicate?

Advantage Oil & Gas Ltd (TSX:AAV), 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$7.17 at one point, and dropping to the lows of CA$3.95. 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 Advantage Oil & Gas's current trading price of CA$3.99 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 Advantage Oil & Gas’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. View our latest analysis for Advantage Oil & Gas

Is Advantage Oil & Gas still cheap?

According to my valuation model, Advantage Oil & Gas seems to be fairly priced at around 10.30% below my intrinsic value, which means if you buy Advantage Oil & Gas today, you’d be paying a fair price for it. And if you believe the company’s true value is CA$4.45, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Advantage Oil & Gas’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Can we expect growth from Advantage Oil & Gas?

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 a negative profit growth of -19.79% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Advantage Oil & Gas. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, AAV 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 the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on AAV 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. Furthermore, 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 AAV 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 Advantage Oil & Gas. You can find everything you need to know about Advantage Oil & Gas in the latest infographic research report. If you are no longer interested in Advantage Oil & Gas, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.