Advantage Oil & Gas Ltd (TSX:AAV), an energy company based in Canada, received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$4.3 at one point, and dropping to the lows of CA$3.54. 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 Advantage Oil & Gas’s current trading price of CA$3.85 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 Advantage Oil & Gas’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for Advantage Oil & Gas
What is Advantage Oil & Gas worth?
According to my valuation model, the stock is currently overvalued by about 85%, trading at CA$3.85 compared to my intrinsic value of CA$2.08. Not the best news for investors looking to buy! But, is there another opportunity to buy low in the future? Given that Advantage Oil & Gas’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Advantage Oil & Gas?
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. Though in the case of Advantage Oil & Gas, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? If you believe AAV 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. Given the risk from a negative growth outlook, this could be the right time to reduce your total portfolio risk. 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 AAV for a while, now may not be the best time to enter into the stock. Its price has risen beyond its true value, on top of a negative future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Advantage Oil & Gas. You can find everything you need to know about Advantage Oil & Gas in the latest infographic research report. If you are no longer interested in Advantage Oil & Gas, 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.