AJ Lucas Group Limited (ASX:AJL), a construction company based in Australia, received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to A$0.38 at one point, and dropping to the lows of A$0.32. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether AJ Lucas Group’s current trading price of A$0.34 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 AJ Lucas Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. See our latest analysis for AJ Lucas Group
What’s the opportunity in AJ Lucas Group?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that AJ Lucas Group’s ratio of 2.87x is trading slightly above its industry peers’ ratio of 1.86x, which means if you buy AJ Lucas Group today, you’d be paying a relatively reasonable price for it. And if you believe that AJ Lucas Group 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 AJ Lucas Group’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 kind of growth will AJ Lucas Group 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. 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. Though in the case of AJ Lucas Group, it is expected to deliver a relatively unexciting earnings growth of 4.45%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for AJ Lucas Group, at least in the near term.
What this means for you:
Are you a shareholder? AJL’s 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 financial strength of the company. Have these factors changed since the last time you looked at AJL? Will you have enough conviction to buy should the price fluctuates below the true value?