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While Shoe Zone plc (LON:SHOE) might not have the largest market cap around , it saw a decent share price growth of 15% on the AIM over the last few months. While good news for shareholders, the company has traded much higher in the past year. As a small cap stock, hardly covered by any analysts, 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 Shoe Zone’s outlook and valuation to see if the opportunity still exists.
Check out our latest analysis for Shoe Zone
What's The Opportunity In Shoe Zone?
Good news, investors! Shoe Zone 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. 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 Shoe Zone’s ratio of 4.93x is below its peer average of 17.4x, which indicates the stock is trading at a lower price compared to the Specialty Retail industry. What’s more interesting is that, Shoe Zone’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. 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.
Can we expect growth from Shoe Zone?
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. However, with an extremely negative double-digit change in profit expected next year, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Shoe Zone, at least in the near future.
What This Means For You
Are you a shareholder? Although SHOE is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to SHOE, 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 SHOE for some time, but hesitant on making the leap, we recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.