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Is Now An Opportune Moment To Examine Drax Group plc (LON:DRX)?

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·3 min read
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Drax Group plc (LON:DRX), might not be a large cap stock, but it saw a decent share price growth in the teens level on the LSE over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Drax Group’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Drax Group

What is Drax Group worth?

According to my valuation model, the stock is currently overvalued by about 38%, trading at UK£3.94 compared to my intrinsic value of £2.85. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Since Drax Group’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Drax Group generate?

earnings-and-revenue-growth
earnings-and-revenue-growth

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. Though in the case of Drax Group, it is expected to deliver a relatively unexciting top-line growth of 8.2% in the next few years, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in DRX’s future outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe DRX 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 an eye on DRX for a while, 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 means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Drax Group, you'd also look into what risks it is currently facing. To that end, you should learn about the 3 warning signs we've spotted with Drax Group (including 1 which is a bit concerning).

If you are no longer interested in Drax Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

This article by Simply Wall St is general in nature. 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.

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