Is It The Right Time To Buy Denbury Resources Inc (DNR)?
Denbury Resources Inc (NYSE:DNR), an energy company based in United States, received a lot of attention from a substantial price increase on the NYSE in the over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine DNR’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. View our latest analysis for Denbury Resources
Is DNR still cheap?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that DNR’s ratio of 1.2x is trading slightly below its industry peers’ ratio of 1.6x, which means if you buy DNR today, you’d be paying a relatively fair price for it. And if you believe DNR should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that DNR’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 kind of growth will DNR generate?
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. 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. DNR’s revenue growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? DNR’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at DNR? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping an eye on DNR, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for DNR, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Denbury Resources. You can find everything you need to know about DNR in the latest infographic research report. If you are no longer interested in Denbury 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.
