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Tabcorp Holdings Limited (ASX:TAH), which is in the hospitality business, and is based in Australia, saw a significant share price rise of over 20% in the past couple of months on the ASX. As a mid-cap 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 take a look at Tabcorp Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Check out our latest analysis for Tabcorp Holdings
What's the opportunity in Tabcorp Holdings?
Great news for investors – Tabcorp Holdings is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is A$4.69, but it is currently trading at AU$2.97 on the share market, meaning that there is still an opportunity to buy now. What’s more interesting is that, Tabcorp Holdings’s share price is theoretically quite stable, which could mean two things: firstly, it may take the share price a while to move to its intrinsic value, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Tabcorp Holdings look like?
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. Though in the case of Tabcorp Holdings, it is expected to deliver a negative earnings growth of -12%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Although TAH is currently undervalued, the negative outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to TAH, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping tabs on TAH for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.