Yahoo Finance Is Old Mutual plc (LON:OML) Undervalued?
Old Mutual plc (LON:OML) received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to £2.61 at one point, and dropping to the lows of £2.14. 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 Old Mutual’s current trading price of £2.14 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Old Mutual’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 Old Mutual
Is Old Mutual still cheap?
Old Mutual appears to be overvalued according to my relative valuation model. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Old Mutual’s ratio of 762x is above its peer average of 16.43x, which suggests the stock is overvalued compared to the Insurance industry. But, is there another opportunity to buy low in the future? Since Old Mutual’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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 Old Mutual generate?
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. 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. With profit expected to more than double over the next couple of years, the future seems bright for Old Mutual. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in OML’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe OML should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on OML for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for OML, which means it’s worth diving deeper into other factors 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 Old Mutual. You can find everything you need to know about Old Mutual in the latest infographic research report. If you are no longer interested in Old Mutual, 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.