ARC Resources Ltd (TSX:ARX), an energy company based in Canada, saw a decent share price growth in the teens level on the TSX over the last few months. With many analysts covering the mid-cap 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 take a look at ARC Resources’s outlook and value based on the most recent financial data to see if the opportunity still exists. Check out our latest analysis for ARC Resources
What is ARC Resources worth?The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that ARC Resources’s ratio of 12.76x is trading slightly below its industry peers’ ratio of 14.95x, which means if you buy ARC Resources today, you’d be paying a fair price for it. And if you believe ARC Resources should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since ARC Resources’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 the stock moves relative to the rest of the market.
What does the future of ARC Resources look like?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. Though in the case of ARC Resources, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Currently, ARX 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 de-risk 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 ARX, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on ARX for a while, now may not be the most optimal 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 ARX 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 ARC Resources. You can find everything you need to know about ARC Resources in the latest infographic research report. If you are no longer interested in ARC Resources, you can use our free platform to see my list of over 50 other stocks with a high growth potential.