Is Edison International (NYSE:EIX) Potentially Undervalued?

Today we're going to take a look at the well-established Edison International (NYSE:EIX). The company's stock saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Edison International’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

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What's The Opportunity In Edison International?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Edison International’s ratio of 17.44x is trading slightly below its industry peers’ ratio of 20.59x, which means if you buy Edison International today, you’d be paying a decent price for it. And if you believe that Edison International should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, it seems like Edison International’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

View our latest analysis for Edison International

What kind of growth will Edison International generate?

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. With profit expected to grow by 95% over the next couple of years, the future seems bright for Edison International. 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? EIX’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 EIX? 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 EIX, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for EIX, 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.

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. For example, we've found that Edison International has 3 warning signs (2 are significant!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Edison International, 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.