When Should You Buy Good Energy Group PLC (LON:GOOD)?

Good Energy Group PLC (LON:GOOD), is not the largest company out there, but it saw a decent share price growth of 10% on the AIM over the last few months. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. Less-covered, small caps sees 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? Let’s examine Good Energy Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Good Energy Group

Is Good Energy Group Still Cheap?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’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 17.11x is currently trading slightly below its industry peers’ ratio of 17.56x, which means if you buy Good Energy Group today, you’d be paying a reasonable price for it. And if you believe that Good Energy Group should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, Good Energy Group’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

What does the future of Good Energy Group look like?

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. Good Energy Group's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? GOOD’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 GOOD? 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 an eye on GOOD, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for GOOD, 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'd like to know more about Good Energy Group as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 3 warning signs with Good Energy Group, and understanding these should be part of your investment process.

If you are no longer interested in Good Energy Group, 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.