At UK£55.84, Is It Time To Put Ashtead Group plc (LON:AHT) On Your Watch List?

Ashtead Group plc (LON:AHT) saw a significant share price rise of over 20% in the past couple of months on the LSE. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Ashtead Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Ashtead Group

Is Ashtead Group still cheap?

According to my valuation model, Ashtead Group seems to be fairly priced at around 6.4% below my intrinsic value, which means if you buy Ashtead Group today, you’d be paying a fair price for it. And if you believe that the stock is really worth £59.66, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Ashtead 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 Ashtead Group look like?

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Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. With profit expected to grow by 59% over the next couple of years, the future seems bright for Ashtead Group. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has already priced in AHT’s positive outlook, 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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on AHT, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, 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.

So while earnings quality is important, it's equally important to consider the risks facing Ashtead Group at this point in time. Case in point: We've spotted 2 warning signs for Ashtead Group you should be aware of.

If you are no longer interested in Ashtead 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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