Summerset Group Holdings Limited (NZSE:SUM), is not the largest company out there, but it received a lot of attention from a substantial price movement on the NZSE over the last few months, increasing to NZ$13.88 at one point, and dropping to the lows of NZ$11.30. 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 Summerset Group Holdings' current trading price of NZ$11.44 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Summerset Group Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Summerset Group Holdings still cheap?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Summerset Group Holdings’s ratio of 5.3x is trading slightly below its industry peers’ ratio of 9.5x, which means if you buy Summerset Group Holdings today, you’d be paying a decent price for it. And if you believe that Summerset Group Holdings should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, Summerset Group Holdings’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What does the future of Summerset Group Holdings 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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Summerset Group Holdings, at least in the near future.
What this means for you:
Are you a shareholder? Currently, SUM appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on SUM, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on SUM for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on SUM should the price fluctuate below the industry PE ratio.
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 3 warning signs for Summerset Group Holdings (2 don't sit too well with us!) that we believe deserve your full attention.
If you are no longer interested in Summerset Group Holdings, 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 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.