Yahoo Finance Why Centrica plc (LON:CNA) Could Be Worth Watching
Centrica plc (LON:CNA), might not be a large cap stock, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£1.57 and falling to the lows of UK£1.24. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Centrica's current trading price of UK£1.31 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Centrica’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 Centrica
Is Centrica Still Cheap?
According to our valuation model, Centrica seems to be fairly priced at around 11.70% above our intrinsic value, which means if you buy Centrica today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is £1.17, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? 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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Centrica look like?
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. Though in the case of Centrica, 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, CNA 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 de-risk your portfolio. Is your current exposure to the stock optimal 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 an eye on CNA for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, 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 CNA should the price fluctuate below its true value.
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 3 warning signs for Centrica (2 are concerning!) that we believe deserve your full attention.
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.
