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ClearView Wealth Limited (ASX:CVW), a diversified financial company based in Australia, received a lot of attention from a substantial price movement on the ASX in the over the last few months, increasing to A$1.75 at one point, and dropping to the lows of A$1.45. 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 ClearView Wealth’s current trading price of A$1.51 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 ClearView Wealth’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for ClearView Wealth
What’s the opportunity in ClearView Wealth?
According to my relative valuation model, the stock is currently overvalued. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 68.65x is currently well-above the industry average of 18.79x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that ClearView Wealth’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
What kind of growth will ClearView Wealth generate?
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. However, with an extreme expected decline in the top-line over the next couple of years, near-term growth is certainly not a driver of a buy decision. Even with a larger decline in expenses, it seems like high uncertainty is on the cards for ClearView Wealth.
What this means for you:
Are you a shareholder? If you believe CVW 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. Given the risk from a negative growth outlook, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.