Yahoo Finance At AU$11.65, Is It Time To Put McMillan Shakespeare Limited (ASX:MMS) On Your Watch List?
McMillan Shakespeare Limited (ASX:MMS), might not be a large cap stock, but it saw significant share price movement during recent months on the ASX, rising to highs of AU$14.63 and falling to the lows of AU$11.65. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether McMillan Shakespeare's current trading price of AU$11.65 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at McMillan Shakespeare’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Check out our latest analysis for McMillan Shakespeare
Is McMillan Shakespeare still cheap?
Good news, investors! McMillan Shakespeare is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. 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 14.76x is currently well-below the industry average of 21.45x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, McMillan Shakespeare’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. 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 McMillan Shakespeare 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. 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. McMillan Shakespeare's earnings over the next few years are expected to increase by 60%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? Since MMS is currently below the industry PE ratio, it may be a great time to increase your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.
Are you a potential investor? If you’ve been keeping an eye on MMS for a while, now might be the time to make a leap. Its buoyant future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy MMS. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed assessment.
So while earnings quality is important, it's equally important to consider the risks facing McMillan Shakespeare at this point in time. In terms of investment risks, we've identified 3 warning signs with McMillan Shakespeare, and understanding them should be part of your investment process.
If you are no longer interested in McMillan Shakespeare, 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.
