Yahoo Finance Why Destination XL Group, Inc. (NASDAQ:DXLG) Could Be Worth Watching
Destination XL Group, Inc. (NASDAQ:DXLG), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the NASDAQGM. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Destination XL Group’s outlook and valuation to see if the opportunity still exists.
See our latest analysis for Destination XL Group
What's The Opportunity In Destination XL Group?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 3.86x is currently trading slightly below its industry peers’ ratio of 6.17x, which means if you buy Destination XL Group today, you’d be paying a reasonable price for it. And if you believe that Destination XL Group 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. Although, there may be an opportunity to buy in the future. This is because Destination XL Group’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.
What does the future of Destination XL Group 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. 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 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 Destination XL Group, at least in the near future.
What This Means For You
Are you a shareholder? DXLG seems priced close to industry peers right now, 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 DXLG, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on DXLG for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, 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 crystallize your views on DXLG should the price fluctuate below the industry PE ratio.
If you want to dive deeper into Destination XL Group, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Destination XL Group has 2 warning signs and it would be unwise to ignore these.
If you are no longer interested in Destination XL Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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