CenterPoint Energy, Inc. (NYSE:CNP) led the NYSE gainers with a relatively large price hike in the past couple of weeks. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on CenterPoint Energy’s outlook and valuation to see if the opportunity still exists.
Is CenterPoint Energy still cheap?
The stock is currently trading at US$32.06 on the share market, which means it is overvalued by 40% compared to my intrinsic value of $22.93. This means that the opportunity to buy CenterPoint Energy at a good price has disappeared! In addition to this, it seems like CenterPoint Energy’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
What kind of growth will CenterPoint Energy generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 a double-digit 19% over the next couple of years, the outlook is positive for CenterPoint Energy. 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? It seems like the market has well and truly priced in CNP’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe CNP should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on CNP for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for CNP, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you'd like to know more about CenterPoint Energy as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 5 warning signs (1 is potentially serious!) that you ought to be aware of before buying any shares in CenterPoint Energy.
If you are no longer interested in CenterPoint Energy, 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.