Is It Time To Buy Downer EDI Limited (ASX:DOW)?
Downer EDI Limited (ASX:DOW), a commercial services and supplies company based in Australia, received a lot of attention from a substantial price movement on the ASX in the over the last few months, increasing to A$7.21 at one point, and dropping to the lows of A$6.43. 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 DOW’s current trading price of A$6.73 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 DOW’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 DOW
What’s the opportunity in DOW?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 13% below my intrinsic value, which means if you buy DOW today, you’d be paying a fair price for it. And if you believe DOW’s true value is A$7.71, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, DOW’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for DOW to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What kind of growth will DOW 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. DOW’s earnings over the next few years are expected to increase by 68.15%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? DOW’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 DOW? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping tabs on DOW, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for DOW, 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 Downer EDI. You can find everything you need to know about DOW in the latest infographic research report. If you are no longer interested in Downer EDI, 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.
