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Forterra plc (LON:FORT), is not the largest company out there, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£2.00 and falling to the lows of UK£1.56. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Forterra's current trading price of UK£1.62 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Forterra’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 Forterra
What Is Forterra Worth?
According to my 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, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Forterra’s ratio of 5.67x is trading slightly below its industry peers’ ratio of 9.82x, which means if you buy Forterra today, you’d be paying a decent price for it. And if you believe Forterra should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Forterra’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Forterra?
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 a negative profit growth of -12% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Forterra. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? FORT seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on FORT, take a look at whether its fundamentals have changed.