Yahoo Finance What Does Redrow plc's (LON:RDW) Share Price Indicate?
While Redrow plc (LON:RDW) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the LSE over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today I will analyse the most recent data on Redrow’s outlook and valuation to see if the opportunity still exists.
Check out our latest analysis for Redrow
Is Redrow Still Cheap?
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 5.1x is currently trading slightly below its industry peers’ ratio of 9.04x, which means if you buy Redrow today, you’d be paying a reasonable price for it. And if you believe Redrow should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Redrow’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 Redrow generate?
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 Redrow, at least in the near future.
What This Means For You
Are you a shareholder? Currently, RDW 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on RDW, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on RDW 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. 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 RDW should the price fluctuate below the industry PE ratio.
If you'd like to know more about Redrow as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Redrow (of which 1 is significant!) you should know about.
If you are no longer interested in Redrow, 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.
