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UniFirst Corporation (NYSE:UNF), might not be a large cap stock, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$211 and falling to the lows of US$169. 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 UniFirst's current trading price of US$176 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at UniFirst’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 UniFirst
What is UniFirst worth?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 25.71x is currently trading slightly below its industry peers’ ratio of 26.75x, which means if you buy UniFirst today, you’d be paying a reasonable price for it. And if you believe that UniFirst should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since UniFirst’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of UniFirst look like?
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. However, with a negative profit growth of -0.3% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for UniFirst. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Currently, UNF appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on UNF, take a look at whether its fundamentals have changed.