Bellatrix Exploration Ltd (TSX:BXE), an energy company based in Canada, received a lot of attention from a substantial price increase on the TSX over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Bellatrix Exploration’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. See our latest analysis for Bellatrix Exploration
What is Bellatrix Exploration worth?According to my relative valuation model, the stock seems to be currently fairly priced. 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 0.13x is currently trading slightly below its industry peers’ ratio of 1.25x, which means if you buy Bellatrix Exploration today, you’d be paying a relatively fair price for it. And if you believe that Bellatrix Exploration should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Bellatrix Exploration’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 does the future of Bellatrix Exploration look like?Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. With revenues expected to grow by a double-digit 15.41% over the next couple of years, the outlook is positive for Bellatrix Exploration. If the level of expenses is able to be maintained, it looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? BXE’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 BXE? 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 tabs on BXE, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for BXE, 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Bellatrix Exploration. You can find everything you need to know about Bellatrix Exploration in the latest infographic research report. If you are no longer interested in Bellatrix Exploration, you can use our free platform to see my list of over 50 other stocks with a high growth potential.