What Does Marathon Oil Corporation’s (MRO) Share Price Indicate?
Marathon Oil Corporation (NYSE:MRO) saw a significant share price rise of over 20% in the past couple of months on the NYSE. 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. But what if there is still an opportunity to buy? Today I will analyse the most recent data on MRO’s outlook and valuation to see if the opportunity still exists. See our latest analysis for MRO
What’s the opportunity in MRO?
According to my relative valuation model, MRO 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 MRO’s ratio of 0.9x is trading slightly below its industry peers’ ratio of 1.6x, which means if you buy MRO today, you’d be paying a relatively reasonable price for it. And if you believe MRO should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since MRO’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much MRO moves relative to the rest of the market.
What kind of growth will MRO 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. However, with an extremely negative double-digit change in profit expected next year, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for MRO, at least in the near future.
What this means for you:
Are you a shareholder? Currently, MRO appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on MRO, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on MRO for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on MRO should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Marathon Oil. You can find everything you need to know about MRO in the latest infographic research report. If you are no longer interested in Marathon Oil, 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.
