G4S plc (LSE:GFS), a commercial services and supplies company based in United Kingdom, received a lot of attention from a substantial price movement on the LSE in the over the last few months, increasing to £3.41 at one point, and dropping to the lows of £2.72. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether GFS's current trading price of £2.79 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at GFS’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for G4S
Is GFS still cheap?
According to my valuation model, GFS seems to be fairly priced at around 6% below my intrinsic value, which means if you buy GFS today, you’d be paying a fair price for it. And if you believe GFS’s true value is £2.97, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, it seems like GFS’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because GFS’s stock is less volatile than the wider market given its low beta.
What does the future of GFS 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. 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. However, with a relatively muted profit growth of 7.23% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for GFS, at least in the short term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in GFS’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at GFS? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on GFS, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for GFS, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.