Enerplus Corporation (NYSE:ERF) is bullish. The stock has gained consistently over the last four weeks. It hit a new high of $18.58 this week. From a low of $12.46 four weeks ago, the stock is currently at $18.04.
Fundamental analysis indicates the various factors driving the valuation. The energy sector is at the strongest point of the decade. Energy prices could still be expected to rise further. For Enerplus Corporation, the gains are also about strong financial performance.
The company’s ROE is at 45.12%. The ROA is 13.13%. Last year’s EPS was $0.92. The EPS is expected to grow with the increase in energy prices. Enerplus is trading at a forward PE of 17.83. The average PE in the industry is 6.55.
The only challenge with Enerplus Corporation is the PE. With the PE at 17.83, the stock could be overvalued. That is despite the strong growth in the oil and gas sector. The stock is likely to retract from the current level.
Enerplus Corporation entered the overbought region
Source – TradingView
At a price of $18.05, the stock just entered the overbought region. The RSI is currently at 74.15. This triggered sell signals. While it is logical to expect some more gains on the stock, we think it will pull back. The stock is likely to face resistance in the region of $18.50 to $19.50. Our analysis indicates that in the event of a pullback, the stock would establish support at $15.
Summary
We recommend selling Enerplus Corporation at the current prices. The stock is fully priced as indicated by the PE. The price is likely to pull back to a valuation of $15.
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