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Enterprise Group, Inc. (TSE:E), is not the largest company out there, but it saw a significant share price rise of 39% in the past couple of months on the TSX. While good news for shareholders, the company has traded much higher in the past year. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today we will analyse the most recent data on Enterprise Group’s outlook and valuation to see if the opportunity still exists.
View our latest analysis for Enterprise Group
What Is Enterprise Group Worth?
According to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 Enterprise Group’s ratio of 19.8x is above its peer average of 14.77x, which suggests the stock is trading at a higher price compared to the Trade Distributors industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Enterprise Group’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 Enterprise Group generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Enterprise Group's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? It seems like the market has well and truly priced in E’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe E 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.