InvoCare Limited (ASX:IVC), a diversified consumer services company based in Australia, saw a decent share price growth in the teens level on the ASX over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine IVC’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. See our latest analysis for IVC

Is IVC still cheap?

According to my relative valuation model, IVC seems to be currently fairly priced. 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 22.1x is currently trading slightly above its industry peers’ ratio of 21.5x, which means if you buy IVC today, you’d be paying a relatively fair price for it. And if you believe IVC should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. In addition to this, it seems like IVC’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 IVC’s stock is less volatile than the wider market given its low beta.

Can we expect growth from IVC?

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 -18.93% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for IVC. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, IVC appears to be trading around its fair value, 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 IVC, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on IVC for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on IVC should the price fluctuate below its true value.