Is Now The Time To Look At Buying Drax Group plc (LON:DRX)?

While Drax Group plc (LON:DRX) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the LSE. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Today I will analyse the most recent data on Drax Group’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Drax Group

What is Drax Group worth?

Drax Group appears to be overvalued by 38% at the moment, based on my discounted cash flow valuation. The stock is currently priced at UK£3.94 on the market compared to my intrinsic value of £2.85. Not the best news for investors looking to buy! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Drax Group’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Drax Group?

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. However, with a relatively muted revenue growth of 8.2% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Drax Group, at least in the short term.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in DRX’s future outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe DRX should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on DRX for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 3 warning signs for Drax Group you should be mindful of and 1 of them is a bit unpleasant.

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

If you’re looking to trade Drax Group, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.