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Is Ridley Corporation Limited (ASX:RIC) Potentially Undervalued?

Simply Wall St
·3-min read

While Ridley Corporation Limited (ASX:RIC) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the ASX over the last few months. As a small cap stock, which tends to lack high analyst coverage, 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? Let’s take a look at Ridley’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Ridley

What is Ridley worth?

According to my valuation model, Ridley seems to be fairly priced at around 13% below my intrinsic value, which means if you buy Ridley today, you’d be paying a fair price for it. And if you believe that the stock is really worth A$1.08, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, Ridley’s low beta implies that the stock is less volatile than the wider market.

What kind of growth will Ridley generate?

earnings-and-revenue-growth
earnings-and-revenue-growth

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. With revenues expected to grow by a double-digit 12% over the next couple of years, the outlook is positive for Ridley. If the level of expenses is able to be maintained, 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? It seems like the market has already priced in RIC’s positive outlook, with shares trading around its fair value. 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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on RIC, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, 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.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Our analysis shows 2 warning signs for Ridley (1 is a bit concerning!) and we strongly recommend you look at these before investing.

If you are no longer interested in Ridley, 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.