What Does Enel Generación Chile S.A.'s (SNSE:ENELGXCH) Share Price Indicate?

While Enel Generación Chile S.A. (SNSE:ENELGXCH) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the SNSE. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Enel Generación Chile’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Enel Generación Chile

What's The Opportunity In Enel Generación Chile?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 7.51x is currently trading in-line with its industry peers’ ratio, which means if you buy Enel Generación Chile today, you’d be paying a relatively sensible price for it. In addition to this, it seems like Enel Generación Chile’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Enel Generación Chile?

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. 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 profit expected to grow by 71% over the next couple of years, the future seems bright for Enel Generación Chile. 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? ENELGXCH’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 ENELGXCH? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on ENELGXCH, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for ENELGXCH, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into Enel Generación Chile, you'd also look into what risks it is currently facing. For example, we've found that Enel Generación Chile has 3 warning signs (1 can't be ignored!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Enel Generación Chile, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.