Is it too late to consider buying Drax Group plc (LON:DRX)?

Drax Group plc (LON:DRX) isn’t the biggest company on the market, but it has seen decent share price growth of 19% on the LSE in recent months. The company is getting closer to its annual highs following the recent rise in its share price. With many analysts covering the mid-cap stocks, we can expect that any price-sensitive announcements have already been factored into the share price. However, could shares still be trading at a relatively cheap price? Let’s take a look at Drax Group’s prospects and value based on the latest financial data to see if the opportunity still exists.

Check out our latest analysis for Drax Group

What is the opportunity at Drax Group?

Great news for investors – Drax Group is still trading at a fairly cheap price according to our price multiples model, where we compare the company’s price-to-earnings ratio to the industry average. In this case, we use the price/earnings (PE) ratio, as there is not enough information to reliably predict the stock’s cash flows. We found that Drax Group’s ratio of 3.7x is below its peers’ average of 18.47x, which indicates the stock is trading at a lower price compared to the Renewable Energy industry. However, given that Drax Group shares are quite volatile (i.e. their price movements are magnified relative to the rest of the market), this could mean that the price could fall further, giving us another opportunity to buy in the future. This is based on its high beta, which is a good indicator of share price volatility.

Can we expect growth from Drax Group?

Future outlook is an important aspect when you are looking to buy a stock, especially if you are an investor looking for growth in your portfolio. 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. However, with an extremely negative double-digit profit swing expected over the next two years, short-term growth is certainly not a driver of a purchase decision. It appears that great uncertainty is present in the Drax Group, at least for the foreseeable future.

What does this mean for you

Are you a shareholder? Although DRX is currently trading below the industry PE ratio, the adverse outlook for negative growth carries some degree of risk. Consider whether you want to increase your portfolio’s exposure to DRX or whether diversifying into another stock might be a better move for your total risk and return.

Are you a potential investor? If you’ve been following DRX for a while but are hesitant to make the leap, we recommend you research the stock further. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that accompany negative growth prospects in the future.

With this in mind, we wouldn’t consider investing in a stock unless we had an in-depth understanding of the risks. To help with this, we discovered 3 warning signs (1 doesn’t please us very much!) that you should be aware of before purchasing any Drax Group shares.

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

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your objectives or financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St has no position in any of the stocks mentioned.