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Mayfield Childcare Limited (ASX:MFD), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to AU$1.15 at one point, and dropping to the lows of AU$1.05. 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 Mayfield Childcare's current trading price of AU$1.12 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 Mayfield Childcare’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Mayfield Childcare still cheap?
The stock is currently trading at AU$1.12 on the share market, which means it is overvalued by 24% compared to my intrinsic value of A$0.90. This means that the opportunity to buy Mayfield Childcare at a good price has disappeared! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Mayfield Childcare’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 kind of growth will Mayfield Childcare generate?
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. Though in the case of Mayfield Childcare, it is expected to deliver a relatively unexciting earnings growth of 7.9%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for Mayfield Childcare, at least in the near term.
What this means for you:
Are you a shareholder? MFD’s future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe MFD 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 an eye on MFD for a while, 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 means it’s worth diving deeper into other factors 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 Mayfield Childcare at this point in time. While conducting our analysis, we found that Mayfield Childcare has 2 warning signs and it would be unwise to ignore them.
If you are no longer interested in Mayfield Childcare, 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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