Renishaw plc (LSE:RSW), a electronic company based in United Kingdom, saw a double-digit share price rise of over 10% in the past couple of months on the LSE. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Renishaw’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. View our latest analysis for Renishaw
What’s the opportunity in Renishaw?
Renishaw appears to be overvalued according to my relative valuation model. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 28.13x is currently well-above the industry average of 17.39x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that Renishaw’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
What does the future of Renishaw 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 a negative profit growth of -2.08% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Renishaw. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? If you believe RSW should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the risk from a negative growth outlook, this could be the right time to reduce your total portfolio risk. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on RSW for some time, now may not be the best time to enter into the stock. Price climbed passed its industry peers, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Renishaw. You can find everything you need to know about Renishaw in the latest infographic research report. If you are no longer interested in Renishaw, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.