Yahoo Finance When Should You Buy Orica Limited (ASX:ORI)?
Orica Limited (ASX:ORI), a chemicals company based in Australia, saw significant share price volatility over the past couple of months on the ASX, rising to the highs of A$20.29 and falling to the lows of A$17.32. 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 Orica’s current trading price of A$17.93 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 Orica’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for Orica
Is Orica still cheap?
According to my valuation model, the stock is currently overvalued by about 53.92%, trading at AU$17.93 compared to my intrinsic value of A$11.65. Not the best news for investors looking to buy! Another thing to keep in mind is that Orica’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
What kind of growth will Orica generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 revenues expected to grow by a double-digit 17.11% over the next couple of years, the outlook is positive for Orica. If the level of expenses is able to be maintained, 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 ORI’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe ORI 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 an eye on ORI for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for ORI, 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 Orica. You can find everything you need to know about Orica in the latest infographic research report. If you are no longer interested in Orica, 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.
