Is It Time To Buy Liberty Gold Corp (TSX:LGD)?
Liberty Gold Corp (TSX:LGD), a metals and mining company based in Canada, saw a decent share price growth in the teens level on the TSX over the last few months. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine LGD’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. View our latest analysis for Liberty Gold
What’s the opportunity in LGD?
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 LGD’s ratio of 2.3x is trading slightly above its industry peers’ ratio of 1.1x, which means if you buy LGD today, you’d be paying a relatively reasonable price for it. And if you believe LGD should be trading in this range, then there isn’t really any 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 LGD’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, LGD’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of LGD look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at LGD future expectations. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for LGD, at least in the near future.
What this means for you:
Are you a shareholder? Currently, LGD appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in 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 LGD, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on LGD for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, 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 crystalize your views on LGD should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Liberty Gold. You can find everything you need to know about LGD in the latest infographic research report. If you are no longer interested in Liberty Gold, 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.
