Headlam Group plc (LON:HEAD), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the LSE. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Headlam Group’s outlook and valuation to see if the opportunity still exists.
See our latest analysis for Headlam Group
What's the opportunity in Headlam Group?
According to my valuation model, Headlam Group seems to be fairly priced at around 6.45% above my intrinsic value, which means if you buy Headlam Group today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is £3.64, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that Headlam Group’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Headlam 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. Headlam Group's earnings over the next few years are expected to increase by 87%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? HEAD’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 financial strength of the company. Have these factors changed since the last time you looked at the stock? 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 HEAD, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.