Yahoo Finance Why Sirius Minerals Plc (LON:SXX) Could Be A Buy
Sirius Minerals Plc (LSE:SXX), a chemicals company based in United Kingdom, received a lot of attention from a substantial price increase on the LSE over the last few months. As a UK£1.60B market-cap stock, it seems odd Sirius Minerals is not more well-covered by analysts. However, this is not necessarily a bad thing given that there are less eyes on the stock to push it closer to fair value. Is there still an opportunity to buy? Let’s examine Sirius Minerals’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. View our latest analysis for Sirius Minerals
What’s the opportunity in Sirius Minerals?
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 Sirius Minerals’s ratio of 3.03x is trading slightly above its industry peers’ ratio of 2.77x, which means if you buy Sirius Minerals today, you’d be paying a relatively reasonable price for it. And if you believe Sirius Minerals should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Furthermore, Sirius Minerals’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
Can we expect growth from Sirius Minerals?
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. Sirius Minerals’s earnings over the next few years are expected to increase by 40.18%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? SXX’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at SXX? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on SXX, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for SXX, which means it’s worth further examining other factors such as the strength of its balance sheet, 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 Sirius Minerals. You can find everything you need to know about Sirius Minerals in the latest infographic research report. If you are no longer interested in Sirius Minerals, 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.
