Ensco plc (NYSE:ESV), an energy company based in United Kingdom, saw a significant share price rise of over 20% in the past couple of months on the NYSE. 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 Ensco’s outlook and valuation to see if the opportunity still exists. View our latest analysis for Ensco
What’s the opportunity in Ensco?The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that Ensco’s ratio of 0.36x is trading slightly below its industry peers’ ratio of 1.47x, which means if you buy Ensco today, you’d be paying a relatively reasonable price for it. And if you believe that Ensco should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Ensco’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 Ensco generate?Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Ensco’s earnings over the next few years are expected to increase by 27.23%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? ESV’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at ESV? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping tabs on ESV, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for ESV, 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Ensco. You can find everything you need to know about Ensco in the latest infographic research report. If you are no longer interested in Ensco, you can use our free platform to see my list of over 50 other stocks with a high growth potential.