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Nine Entertainment Co. Holdings Limited (ASX:NEC), 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 ASX. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Nine Entertainment Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
See our latest analysis for Nine Entertainment Holdings
What's the opportunity in Nine Entertainment Holdings?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Nine Entertainment Holdings’s ratio of 18.09x is trading slightly above its industry peers’ ratio of 14.28x, which means if you buy Nine Entertainment Holdings today, you’d be paying a relatively reasonable price for it. And if you believe that Nine Entertainment Holdings should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, Nine Entertainment Holdings’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What kind of growth will Nine Entertainment Holdings generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. With profit expected to grow by 49% over the next couple of years, the future seems bright for Nine Entertainment Holdings. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in NEC’s positive outlook, with shares trading around industry price multiples. 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 NEC? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?