Subsea 7 SA. (OB:SUBC), an energy company based in Luxembourg, saw a double-digit share price rise of over 10% in the past couple of months on the OB. 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. But what if there is still an opportunity to buy? Let’s examine Subsea 7’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. Check out our latest analysis for Subsea 7
What is Subsea 7 worth?According to my valuation model, Subsea 7 seems to be fairly priced at around 18.40% below my intrinsic value, which means if you buy Subsea 7 today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth NOK138.91, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Subsea 7’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Subsea 7 generate?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 Subsea 7, 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? Currently, SUBC appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on SUBC for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on SUBC should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Subsea 7. You can find everything you need to know about Subsea 7 in the latest infographic research report. If you are no longer interested in Subsea 7, you can use our free platform to see my list of over 50 other stocks with a high growth potential.