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Dignity plc (LON:DTY), is not the largest company out there, but it saw a decent share price growth in the teens level on the LSE over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today I will analyse the most recent data on Dignity’s outlook and valuation to see if the opportunity still exists.
What is Dignity worth?
The stock is currently trading at UK£7.77 on the share market, which means it is overvalued by 21% compared to my intrinsic value of £6.44. This means that the buying opportunity has probably disappeared for now. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Dignity’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Dignity look like?
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. Dignity's earnings over the next few years are expected to increase by 35%, 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? It seems like the market has well and truly priced in DTY’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe DTY should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on DTY for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for DTY, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you want to dive deeper into Dignity, you'd also look into what risks it is currently facing. Our analysis shows 3 warning signs for Dignity (2 are a bit unpleasant!) and we strongly recommend you look at them before investing.
If you are no longer interested in Dignity, 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. 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.
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