Advantage Oil & Gas Ltd (TSX:AAV), an energy company based in Canada, saw significant share price volatility over the past couple of months on the TSX, rising to the highs of CA$6.04 and falling to the lows of CA$3.65. 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$3.79 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. See our latest analysis for Advantage Oil & Gas
What’s the opportunity in Advantage Oil & Gas?
According to my valuation model, Advantage Oil & Gas seems to be fairly priced at around 18.95% below my intrinsic value, which means if you buy Advantage Oil & Gas today, you’d be paying a fair price for it. And if you believe that the stock is really worth CA$4.68, then there isn’t much room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since Advantage Oil & Gas’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will Advantage Oil & Gas generate?
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 the company’s future expectations. 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? Currently, AAV 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 the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on AAV for a while, now may not be the most advantageous 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 gel your views on AAV 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 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.