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Canfor Pulp Products Inc. (TSE:CFX), which is in the forestry business, and is based in Canada, received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$11.5 at one point, and dropping to the lows of CA$8.7. 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 Canfor Pulp Products's current trading price of CA$9.49 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 Canfor Pulp Products’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Canfor Pulp Products
What's the opportunity in Canfor Pulp Products?
Great news for investors – Canfor Pulp Products is still trading at a fairly cheap price. 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 Canfor Pulp Products’s ratio of 7.89x is below its peer average of 17.18x, which suggests the stock is undervalued compared to the Forestry industry. However, given that Canfor Pulp Products’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.
Can we expect growth from Canfor Pulp Products?
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 Canfor Pulp Products, at least in the near future.
What this means for you:
Are you a shareholder? Although CFX is currently undervalued, the negative outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to CFX, 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 an eye on CFX for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.