Is Golden Ocean Group Limited (NASDAQ:GOGL) Potentially Undervalued?

Golden Ocean Group Limited (NASDAQ:GOGL), might not be a large cap stock, but it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$16.06 and falling to the lows of US$9.45. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Golden Ocean Group's current trading price of US$9.82 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 Golden Ocean Group’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 Golden Ocean Group

Is Golden Ocean Group Still Cheap?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Golden Ocean Group’s ratio of 2.87x is trading slightly above its industry peers’ ratio of 2.03x, which means if you buy Golden Ocean Group today, you’d be paying a relatively reasonable price for it. And if you believe Golden Ocean Group should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Golden Ocean Group’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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 Golden Ocean 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 an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Golden Ocean Group, at least in the near future.

What This Means For You

Are you a shareholder? Currently, GOGL appears to be trading around industry price multiples, 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 GOGL, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on GOGL for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, 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 GOGL should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Golden Ocean Group at this point in time. To that end, you should learn about the 3 warning signs we've spotted with Golden Ocean Group (including 1 which is potentially serious).

If you are no longer interested in Golden Ocean 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.