Yahoo Finance Is Now The Time To Look At Buying Cairn Homes plc (LON:CRN)?
While Cairn Homes plc (LON:CRN) might not have the largest market cap around , it saw a significant share price rise of 22% in the past couple of months on the LSE. The company is now trading at yearly-high levels following the recent surge in its share price. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine Cairn Homes’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for Cairn Homes
What's The Opportunity In Cairn Homes?
The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Cairn Homes’s ratio of 12.11x is trading slightly below its industry peers’ ratio of 13.52x, which means if you buy Cairn Homes today, you’d be paying a decent price for it. And if you believe Cairn Homes should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Cairn Homes’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 Cairn Homes 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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 45% over the next couple of years, the future seems bright for Cairn Homes. 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? CRN’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 financial strength of the company. Have these factors changed since the last time you looked at CRN? 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 tabs on CRN, 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 CRN, 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 Cairn Homes at this point in time. At Simply Wall St, we found 1 warning sign for Cairn Homes and we think they deserve your attention.
If you are no longer interested in Cairn Homes, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
