Jones Energy Inc (NYSE:JONE), an energy company based in United States, received a lot of attention from a substantial price increase on the NYSE 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, could the stock still be trading at a relatively cheap price? Let’s examine Jones Energy’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. See our latest analysis for Jones Energy
Is Jones Energy still cheap?
According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-book ratio in this instance because there’s not enough visibility to forecast its cash flows, and its earnings doesn’t seem to reflect its true value. The stock’s ratio of 0.15x is currently trading slightly below its industry peers’ ratio of 1.45x, which means if you buy Jones Energy today, you’d be paying a relatively fair price for it. And if you believe Jones Energy should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. Although, there may be an opportunity to buy in the future. This is because Jones Energy’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 Jones Energy?
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. Jones Energy’s earnings over the next few years are expected to increase by 30.63%, 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? It seems like the market has already priced in JONE’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at JONE? 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 an eye on JONE, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for JONE, 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 Jones Energy. You can find everything you need to know about Jones Energy in the latest infographic research report. If you are no longer interested in Jones Energy, 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.