Yahoo Finance Is It Time To Consider Buying McBride plc (LON:MCB)?
McBride plc (LON:MCB), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the LSE. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine McBride’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Check out our latest analysis for McBride
What's the opportunity in McBride?
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 McBride’s ratio of 7.58x is trading slightly below its industry peers’ ratio of 10.05x, which means if you buy McBride today, you’d be paying a reasonable price for it. And if you believe that McBride 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, it seems like McBride’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.
Can we expect growth from McBride?
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. Though in the case of McBride, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Currently, MCB 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 MCB, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on MCB 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 MCB should the price fluctuate below the industry PE ratio.
So while earnings quality is important, it's equally important to consider the risks facing McBride at this point in time. Our analysis shows 4 warning signs for McBride (2 can't be ignored!) and we strongly recommend you look at them before investing.
If you are no longer interested in McBride, 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.
