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Is Now The Time To Look At Buying Danaos Corporation (NYSE:DAC)?

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·3 min read
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Danaos Corporation (NYSE:DAC), is not the largest company out there, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$107 and falling to the lows of US$65.16. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Danaos' current trading price of US$67.43 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Danaos’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Danaos

What's the opportunity in Danaos?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Danaos’s ratio of 1.28x is trading slightly below its industry peers’ ratio of 2.75x, which means if you buy Danaos today, you’d be paying a reasonable price for it. And if you believe Danaos should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Danaos’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Danaos look like?

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

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 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 Danaos, at least in the near future.

What this means for you:

Are you a shareholder? DAC seems priced close to industry peers right now, 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 DAC, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on DAC for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This 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 DAC should the price fluctuate below the industry PE ratio.

If you want to dive deeper into Danaos, you'd also look into what risks it is currently facing. For example, we've found that Danaos has 4 warning signs (2 shouldn't be ignored!) that deserve your attention before going any further with your analysis.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.