Stock Analysis

Is It Time To Buy Cairn Energy plc (LON:CNE)?

LSE:CNE
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Cairn Energy plc (LSE:CNE), an energy company based in United Kingdom, saw significant share price volatility over the past couple of months on the LSE, rising to the highs of £2.36 and falling to the lows of £1.86. 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 Cairn Energy's current trading price of £1.86 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 Cairn Energy’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 Cairn Energy

What is Cairn Energy worth?

Good news, investors! Cairn Energy is still a bargain right now. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 5.78x is currently well-below the industry average of 14.56x, meaning that it is trading at a cheaper price relative to its peers. Cairn Energy’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What kind of growth will Cairn Energy generate?

LSE:CNE Future Profit Feb 14th 18
LSE:CNE Future Profit Feb 14th 18
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. Though in the case of Cairn Energy, 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? Although CNE is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to CNE, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on CNE for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

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

Valuation is complex, but we're helping make it simple.

Find out whether Capricorn Energy is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.