Galp (ENXTLS:GALP): Assessing Valuation After Recent Share Price Weakness

Galp Energia SGPS (ENXTLS:GALP) has been under pressure lately, with the share price sliding about 22% over the past month and roughly 10% in the past 3 months.

See our latest analysis for Galp Energia SGPS.

Zooming out, that sharp 1 month share price decline sits against a softer year to date share price return and a still solid 5 year total shareholder return above 100 percent. This suggests longer term holders have been rewarded even as near term momentum cools.

If Galp’s volatility has you rethinking your energy exposure, it might be worth scanning fast growing stocks with high insider ownership to see what other compelling stories are emerging on the market’s radar.

With analysts seeing upside from today’s price and our estimates pointing to shares trading at a modest discount to intrinsic value, the key question is whether this weakness marks a buying opportunity, or if the market is already pricing in Galp’s future growth.

Price-to-Earnings of 10.1x: Is it justified?

On a trailing basis, Galp Energia SGPS trades on a 10.1x price to earnings ratio, a level that screens as modestly undervalued versus peers and its own fundamentals.

The price to earnings multiple links what investors pay today to the company’s current profit stream. This makes it a core yardstick for mature, cash generative energy groups like Galp.

Against that backdrop, Galp’s return on equity of 21.7 percent and its track record of becoming profitable over the past five years sit in contrast to forecasts for earnings to decline by around the mid single digits annually over the next three years. This contrast helps explain why the market is not awarding a richer multiple.

Even so, the 10.1x price to earnings ratio stands at a clear discount to both the European oil and gas industry average of 11.5x and the closer peer group on roughly 13x. This implies investors are pricing Galp’s earnings stream more conservatively than many regional competitors.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-earnings of 10.1x (UNDERVALUED)

However, softer revenue trends and expectations for earnings contraction could quickly erase Galp’s valuation appeal if commodity conditions or project execution disappoint.

Find out about the key risks to this Galp Energia SGPS narrative.

Another View: SWS DCF Suggests Only Modest Upside

Our DCF model also points to Galp trading below fair value, with the current €14.11 price sitting about 9.5 percent under our €15.58 estimate. That is a gentler discount than the earnings multiple implies, raising the question of whether expectations or cash flows are more at risk.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Galp Energia SGPS for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 918 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Galp Energia SGPS Narrative

If you see the numbers differently or would rather dig into the details yourself, you can shape a custom view in just minutes. Do it your way.

A great starting point for your Galp Energia SGPS research is our analysis highlighting 2 key rewards and 3 important warning signs that could impact your investment decision.

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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.

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