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Swiss Water Decaffeinated Coffee Inc. (TSE:SWP), might not be a large cap stock, but it saw a decent share price growth of 11% on the TSX over the last few months. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at Swiss Water Decaffeinated Coffee’s outlook and value based on the most recent financial data to see if the opportunity still exists.
See our latest analysis for Swiss Water Decaffeinated Coffee
What's The Opportunity In Swiss Water Decaffeinated Coffee?
Swiss Water Decaffeinated Coffee is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison 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 58.62x is currently well-above the industry average of 15.47x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Swiss Water Decaffeinated Coffee’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.
What kind of growth will Swiss Water Decaffeinated Coffee generate?
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. With revenues expected to grow by a double-digit 10% in the upcoming year, the outlook is positive for Swiss Water Decaffeinated Coffee. If the level of expenses is able to be maintained, 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 well and truly priced in SWP’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe SWP should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.