Is Methanex Corporation (TSE:MX) Potentially Undervalued?

Methanex Corporation (TSE:MX), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$55.61 at one point, and dropping to the lows of CA$46.76. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Methanex's current trading price of CA$48.71 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 Methanex’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

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What's The Opportunity In Methanex?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Methanex’s ratio of 12.49x is trading slightly below its industry peers’ ratio of 14.21x, which means if you buy Methanex today, you’d be paying a decent price for it. And if you believe Methanex 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. Although, there may be an opportunity to buy in the future. This is because Methanex’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

View our latest analysis for Methanex

What does the future of Methanex look like?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. Methanex's earnings over the next few years are expected to increase by 24%, 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 MX’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 track record of its management team. Have these factors changed since the last time you looked at MX? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on MX, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for MX, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Methanex as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 2 warning signs for Methanex and you'll want to know about them.

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