At UK£0.53, Is Coats Group plc (LON:COA) Worth Looking At Closely?

While Coats Group plc (LON:COA) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase 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 Coats Group’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Coats Group

What's the opportunity in Coats Group?

According to my valuation model, Coats Group seems to be fairly priced at around 3.50% above my intrinsic value, which means if you buy Coats Group today, you’d be paying a relatively reasonable price for it. And if you believe that the stock is really worth £0.51, then there isn’t really any room for the share price grow beyond what it’s currently trading. Although, there may be an opportunity to buy in the future. This is because Coats 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 Coats Group look like?

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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 -13% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Coats Group. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? COA seems fairly priced 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 the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on COA for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which 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 COA should the price fluctuate below its true value.

So while earnings quality is important, it's equally important to consider the risks facing Coats Group at this point in time. For example - Coats Group has 1 warning sign we think you should be aware of.

If you are no longer interested in Coats Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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. 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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