California Resources Corp (NYSE: CRC), an energy company with a market capitalization of $1.6 billion, saw its share price increase by 151.5% over the prior three months. As a small-cap stock with decent coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. Is there still an opportunity here to buy? Let’s examine CRC’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Is CRC Still Cheap?
According to my valuation models, the stock is currently overvalued by approximately -28.3%, trading at $36.74 compared to its intrinsic value of $26.35. Not the best news for investors looking to buy!
|Analysis||Model Fair Value||Upside (Downside)|
|Peer Revenue Multiples||$34.31||-6.6%|
|10-yr DCF Growth Exit||$27.91||-24.0%|
|5-yr DCF Growth Exit||$22.44||-38.9%|
|Dividend Discount Model (multi-stage)||$20.76||-43.5%|
Click on any of the analyses above to view the latest model with real-time data.
However, will there be another opportunity to buy low in the future? Given that CRC’s stock is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) could mean the price can sink lower, giving investors another chance to buy in the future. This is based on its beta of 5.96, which is a good indicator for share price volatility.
What Does The Future Of CRC Look Like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations.
source: finbox.io data explorer
With EBITDA expected to grow on average of 17.8% over the next couple years, the future certainly appears bright for CRC. It looks like higher cash flows are in the cards for shareholders, which should feed into a higher share valuation.
How This Impacts You
Many investors separate stocks into value and growth categories based on quantitative metrics. However, one of the most famous investors in the world views this as foolish. In Warren Buffett’s 1992 letter to Berkshire Hathaway shareholders, Buffett touches upon a subject at odds with much of the investment industry:
“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking… In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value.”
While investors tend to categorize stocks into value and growth, some of the most successful investors view growth as simply one component of a company’s value.
CRC has positioned itself so that double-digit growth appears to be a reasonable assumption for the foreseeable future. However, this growth does not look highly attractive at current trading levels. As such, investors may want to hold off on buying or adding to their CRC position for the time being.
But before making an investment decision, I recommend you continue to research CRC to get a more comprehensive view of the company by looking at:
Risk Metrics: how much interest coverage does CRC have? This is a ratio used to assess a firm’s ability to pay interest expenses based on operating profits (EBIT). View the company’s interest coverage here.
Valuation Metrics: what is CRC’s short ratio and how does it compare to its publicly traded peers? It represents the percentage of total shares outstanding that is being shorted. View the short ratio here.
Efficiency Metrics: fixed asset turnover is calculated by dividing revenue by average fixed assets. View CRC’s fixed asset turnover here.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.