Is There Now An Opportunity In Ariana Resources plc (AIM:AAU)?
Ariana Resources plc (AIM:AAU), a metals and mining company based in United Kingdom, saw a decent share price growth in the teens level on the AIM over the last few months. Less covered, small-stocks like AAU sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could AAU still be trading at a low price relative to its actual value? Today I will analyse the most recent data on AAU’s outlook and valuation to see if the opportunity still exists. Check out our latest analysis for Ariana Resources
What’s the opportunity in AAU?
Great news for investors – AAU is still trading at a fairly cheap price. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that AAU’s ratio of 1x is below its peer average of 11x, which suggests the stock is undervalued compared to the metals and mining industry. AAU’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What kind of growth will AAU 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. However, with a negative profit growth of -3.95% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for AAU. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Although AAU is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to AAU, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping tabs on AAU for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Ariana Resources. You can find everything you need to know about AAU in the latest infographic research report. If you are no longer interested in Ariana Resources, 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.
