Yahoo Finance Should You Investigate Reliance Worldwide Corporation Limited (ASX:RWC) At AU$3.67?
Reliance Worldwide Corporation Limited (ASX:RWC), is not the largest company out there, but it received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to AU$4.39 at one point, and dropping to the lows of AU$3.65. 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 Reliance Worldwide's current trading price of AU$3.67 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 Reliance Worldwide’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
See our latest analysis for Reliance Worldwide
What is Reliance Worldwide worth?
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 Reliance Worldwide’s ratio of 14.77x is trading slightly above its industry peers’ ratio of 14.46x, which means if you buy Reliance Worldwide today, you’d be paying a relatively sensible price for it. And if you believe that Reliance Worldwide should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since Reliance Worldwide’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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 Reliance Worldwide generate?
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. Reliance Worldwide's earnings over the next few years are expected to increase by 37%, 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? RWC’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 RWC? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on RWC, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for RWC, which means it’s worth diving deeper into 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 Reliance Worldwide at this point in time. You'd be interested to know, that we found 2 warning signs for Reliance Worldwide and you'll want to know about these.
If you are no longer interested in Reliance Worldwide, 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.
