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While Diversified Royalty Corp. (TSE:DIV) might not have the largest market cap around , it had a relatively subdued couple of weeks in terms of changes in share price, which continued to float around the range of CA$2.63 to CA$2.86. However, is this the true valuation level of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Diversified Royalty’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
See our latest analysis for Diversified Royalty
What's The Opportunity In Diversified Royalty?
Good news, investors! Diversified Royalty is still a bargain right now according to our price multiple model, which compares the company's price-to-earnings ratio to the industry average. We’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 14.58x is currently well-below the industry average of 30.68x, meaning that it is trading at a cheaper price relative to its peers. However, given that Diversified Royalty’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Diversified Royalty?
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. However, with a relatively muted profit growth of 1.5% expected over the next year, growth doesn’t seem like a key driver for a buy decision for Diversified Royalty, at least in the short term.
What This Means For You
Are you a shareholder? Even though growth is relatively muted, since DIV is currently trading below the industry PE ratio, it may be a great time to increase your holdings in the stock. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.
Are you a potential investor? If you’ve been keeping an eye on DIV for a while, now might be the time to enter the stock. Its future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy DIV. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed investment decision.