At £0.325, Is It Time To Buy JKX Oil & Gas plc (LON:JKX)?
JKX Oil & Gas plc (LSE:JKX), an energy company based in United Kingdom, led the LSE gainers with a relatively large price hike in the past couple of weeks. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on JKX Oil & Gas’s outlook and valuation to see if the opportunity still exists. View our latest analysis for JKX Oil & Gas
Is JKX Oil & Gas still cheap?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 JKX Oil & Gas’s ratio of 0.5x is trading slightly below its industry peers’ ratio of 1.33x, which means if you buy JKX Oil & Gas today, you’d be paying a relatively fair price for it. And if you believe JKX Oil & Gas should be trading in this range, 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 JKX Oil & Gas’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 JKX Oil & Gas 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. 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 revenues expected to grow by 47.95% over the next year, the future seems bright for JKX Oil & Gas. If the level of expenses is able to be maintained, it looks like higher cash flows is on the cards for the stock in the upcoming year, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in JKX’s positive outlook, 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 JKX? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on JKX, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for JKX, 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 JKX Oil & Gas. You can find everything you need to know about JKX Oil & Gas in the latest infographic research report. If you are no longer interested in JKX Oil & Gas, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
