Iren SpA (BIT:IRE), which is in the integrated utilities business, and is based in Italy, received a lot of attention from a substantial price movement on the BIT over the last few months, increasing to €2.42 at one point, and dropping to the lows of €2.02. 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 Iren’s current trading price of €2.11 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Iren’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Iren still cheap?
According to my valuation model, Iren seems to be fairly priced at around 6.66% above my intrinsic value, which means if you buy Iren today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is €1.98, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Iren’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from Iren?
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. However, with a negative profit growth of -4.0% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Iren. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Currently, IRE 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 optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on IRE 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. In addition to this, 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 IRE 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 Iren. You can find everything you need to know about Iren in the latest infographic research report. If you are no longer interested in Iren, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.