G3 Exploration Limited (LSE:G3E), an energy company based in China, received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to £0.64 at one point, and dropping to the lows of £0.56. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether G3 Exploration’s current trading price of £0.56 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 G3 Exploration’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for G3 Exploration
What is G3 Exploration worth?
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 G3 Exploration’s ratio of 0.18x is trading slightly below its industry peers’ ratio of 1.24x, which means if you buy G3 Exploration today, you’d be paying a relatively reasonable price for it. And if you believe that G3 Exploration should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Furthermore, G3 Exploration’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What does the future of G3 Exploration look like?
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 38.18% over the next year, the near-term future seems bright for G3 Exploration. It looks like higher cash flows is on the cards for the stock, 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 G3E’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 G3E? 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 G3E, 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 G3E, which means it’s worth diving deeper into 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 G3 Exploration. You can find everything you need to know about G3 Exploration in the latest infographic research report. If you are no longer interested in G3 Exploration, 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.