Advertisement
New Zealand markets closed
  • NZX 50

    12,105.29
    +94.63 (+0.79%)
     
  • NZD/USD

    0.5963
    -0.0043 (-0.71%)
     
  • ALL ORDS

    8,153.70
    +80.10 (+0.99%)
     
  • OIL

    81.81
    +0.46 (+0.57%)
     
  • GOLD

    2,213.90
    +1.20 (+0.05%)
     

At US$15.43, Is PG&E Corporation (NYSE:PCG) Worth Looking At Closely?

PG&E Corporation (NYSE:PCG) led the NYSE gainers with a relatively large price hike in the past couple of weeks. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Today I will analyse the most recent data on PG&E’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for PG&E

What Is PG&E Worth?

The share price seems sensible at the moment according to my price multiple model, where I compare 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 PG&E’s ratio of 17.44x is trading slightly below its industry peers’ ratio of 19.18x, which means if you buy PG&E today, you’d be paying a decent price for it. And if you believe PG&E should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that PG&E’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 PG&E look like?

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. PG&E's earnings over the next few years are expected to increase by 65%, 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? It seems like the market has already priced in PCG’s positive outlook, with shares trading around industry price multiples. 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 PCG? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

ADVERTISEMENT

Are you a potential investor? If you’ve been keeping tabs on PCG, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for PCG, 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.

So while earnings quality is important, it's equally important to consider the risks facing PG&E at this point in time. Our analysis shows 2 warning signs for PG&E (1 is potentially serious!) and we strongly recommend you look at them before investing.

If you are no longer interested in PG&E, 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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here