Is TransAlta Corporation (TSE:TA) Undervalued?

By
Simply Wall St
Published
June 20, 2018
TSX:TA
Source: Shutterstock

TransAlta Corporation (TSE:TA), a renewable energy company based in Canada, saw significant share price volatility over the past couple of months on the TSX, rising to the highs of CA$7.46 and falling to the lows of CA$6.5. 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 TransAlta's current trading price of CA$6.58 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 TransAlta’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. See our latest analysis for TransAlta

Is TransAlta still cheap?

Great news for investors – TransAlta is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is CA$27.6, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. However, given that TransAlta’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of TransAlta look like?

TSX:TA Future Profit June 20th 18
TSX:TA Future Profit June 20th 18
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. Though in the case of TransAlta, it is expected to deliver a relatively unexciting top-line growth of 3.98% in the next few years, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.

What this means for you:

Are you a shareholder? Even though growth is relatively muted, since TA is currently undervalued, it may be a great time to accumulate more of your holdings in the stock. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.

Are you a potential investor? If you’ve been keeping an eye on TA for a while, now might be the time to enter the stock. Its future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy TA. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed investment decision.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on TransAlta. You can find everything you need to know about TransAlta in the latest infographic research report. If you are no longer interested in TransAlta, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

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.

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