SRG Limited (ASX:SRG), a construction and engineering company based in Australia, saw a double-digit share price rise of over 10% in the past couple of months on the ASX. Less covered, small-stocks like SRG 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 SRG still be trading at a low price relative to its actual value? Let’s take a look at SRG’s outlook and value based on the most recent financial data to see if the opportunity still exists. Check out our latest analysis for SRG
What is SRG worth?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that SRG’s ratio of 12.2x is trading slightly below its industry peers’ ratio of 17.7x, which means if you buy SRG today, you’d be paying a reasonable price for it. And if you believe that SRG should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. In addition to this, it seems like SRG’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because SRG’s stock is less volatile than the wider market given its low beta.
What kind of growth will SRG generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. SRG’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? SRG’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at SRG? 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 tabs on SRG, 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 SRG, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.