Qube Holdings Limited (ASX:QUB), which is in the infrastructure business, and is based in Australia, received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to A$2.8 at one point, and dropping to the lows of A$2.35. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Qube Holdings’s current trading price of A$2.55 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Qube Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Qube Holdings still cheap?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 20.44x is currently trading slightly below its industry peers’ ratio of 22.18x, which means if you buy Qube Holdings today, you’d be paying a fair price for it. And if you believe that Qube Holdings should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Qube Holdings’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Qube Holdings look like?
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 -7.4% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Qube Holdings. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? QUB 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 QUB, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on QUB for a while, now may not be the most optimal 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. Furthermore, 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 QUB should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Qube Holdings. You can find everything you need to know about Qube Holdings in the latest infographic research report. If you are no longer interested in Qube Holdings, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.