Why Golden Ocean Group Limited (NASDAQ:GOGL) Could Be Worth Watching

By
Simply Wall St
Published
October 22, 2021
NasdaqGS:GOGL
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Golden Ocean Group Limited (NASDAQ:GOGL), is not the largest company out there, but it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$12.08 and falling to the lows of US$9.30. 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$9.36 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.

See our latest analysis for Golden Ocean Group

Is Golden Ocean Group still cheap?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 9.75x is trading slightly below its industry peers’ ratio of 10.51x, which means if you buy Golden Ocean Group today, you’d be paying a reasonable price for it. And if you believe Golden Ocean Group should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because Golden Ocean Group’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Golden Ocean Group generate?

earnings-and-revenue-growth
NasdaqGS:GOGL Earnings and Revenue Growth October 23rd 2021

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. 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. With profit expected to grow by 65% over the next couple of years, the future seems bright for Golden Ocean Group. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? GOGL’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 financial strength of the company. Have these factors changed since the last time you looked at GOGL? 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 GOGL, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for GOGL, 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 want to dive deeper into Golden Ocean Group, you'd also look into what risks it is currently facing. To that end, you should learn about the 5 warning signs we've spotted with Golden Ocean Group (including 2 which are a bit unpleasant).

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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