Centrica plc (LON:CNA), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the LSE over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Centrica’s outlook and valuation to see if the opportunity still exists.
What Is Centrica Worth?
Great news for investors – Centrica is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is £1.95, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. However, given that Centrica’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Centrica?
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. 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. However, with a relatively muted revenue growth of 8.9% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Centrica, at least in the short term.
What This Means For You
Are you a shareholder? Even though growth is relatively muted, since CNA is currently undervalued, it may be a great time to increase your holdings in the stock. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.
Are you a potential investor? If you’ve been keeping an eye on CNA for a while, now might be the time to make a leap. Its future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy CNA. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed buy.
So while earnings quality is important, it's equally important to consider the risks facing Centrica at this point in time. For example - Centrica has 1 warning sign we think you should be aware of.
If you are no longer interested in Centrica, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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