Mainfreight Limited (NZSE:MFT), a logistics company based in New Zealand, maintained its current share price over the past couple of month on the NZSE, with a relatively tight range of NZ$23.61 to NZ$25.65. However, does this price actually reflect the true value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Mainfreight’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. View our latest analysis for Mainfreight
What is Mainfreight worth?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Mainfreight’s ratio of 24.71x is trading slightly above its industry peers’ ratio of 22.51x, which means if you buy Mainfreight today, you’d be paying a relatively reasonable price for it. And if you believe that Mainfreight should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. In addition to this, it seems like Mainfreight’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Mainfreight 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. With profit expected to grow by 31.22% over the next couple of years, the future seems bright for Mainfreight. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? Mainfreight’s optimistic future growth appears to have been factored into the current share price, 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 Mainfreight? 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 tabs on Mainfreight, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for Mainfreight, 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.