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Is Arrow Global Group PLC (LON:ARW) Potentially Undervalued?

Simply Wall St

Arrow Global Group PLC (LON:ARW), which is in the consumer finance business, and is based in United Kingdom, saw significant share price movement during recent months on the LSE, rising to highs of UK£2.39 and falling to the lows of UK£1.94. 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 Arrow Global Group's current trading price of UK£2.09 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 Arrow Global Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Arrow Global Group

What is Arrow Global Group worth?

According to my relative valuation model, the stock seems to be currently fairly priced. 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 Arrow Global Group’s ratio of 9.27x is trading slightly below its industry peers’ ratio of 10.75x, which means if you buy Arrow Global Group today, you’d be paying a reasonable price for it. And if you believe that Arrow Global Group should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Arrow Global Group’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Arrow Global Group generate?

LSE:ARW Past and Future Earnings, November 28th 2019

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. Arrow Global Group’s earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? ARW’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 ARW? Will you have enough conviction to buy should the price fluctuate below the true value?

Are you a potential investor? If you’ve been keeping tabs on ARW, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for ARW, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Arrow Global Group. You can find everything you need to know about Arrow Global Group in the latest infographic research report. If you are no longer interested in Arrow Global Group, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.