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What Does Good Energy Group PLC's (LON:GOOD) Share Price Indicate?

Good Energy Group PLC (LON:GOOD), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the AIM. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Good Energy Group’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Good Energy Group

Is Good Energy Group Still Cheap?

Good news, investors! Good Energy Group is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Good Energy Group’s ratio of 2.99x is below its peer average of 16.16x, which indicates the stock is trading at a lower price compared to the Renewable Energy industry. Another thing to keep in mind is that Good Energy Group’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 industry peers, 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.

Can we expect growth from Good Energy Group?

earnings-and-revenue-growth
earnings-and-revenue-growth

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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Good Energy Group, at least in the near future.

What This Means For You

Are you a shareholder? Although GOOD is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to GOOD, or whether diversifying into another stock may be a better move for your total risk and return.

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Are you a potential investor? If you’ve been keeping tabs on GOOD for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you want to dive deeper into Good Energy Group, you'd also look into what risks it is currently facing. For example, Good Energy Group has 4 warning signs (and 1 which is a bit concerning) we think you should know about.

If you are no longer interested in Good Energy Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.