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Diversified Royalty Corp. (TSE:DIV), is not the largest company out there, but it saw its share price hover around a small range of CA$2.79 to CA$3.06 over the last few weeks. But is this actually reflective of the share value 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.
View our latest analysis for Diversified Royalty
What's The Opportunity In Diversified Royalty?
According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Diversified Royalty’s ratio of 14.62x is trading slightly below its industry peers’ ratio of 17.75x, which means if you buy Diversified Royalty today, you’d be paying a decent price for it. And if you believe that Diversified Royalty should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since Diversified Royalty’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of Diversified Royalty look like?
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. Though in the case of Diversified Royalty, it is expected to deliver a relatively unexciting earnings growth of 1.7%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for Diversified Royalty, at least in the near term.
What This Means For You
Are you a shareholder? DIV’s future growth appears to have been factored into the current share price, 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 DIV? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?