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FirstGroup plc (LON:FGP), is not the largest company out there, but it received a lot of attention from a substantial price increase on the LSE over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine FirstGroup’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for FirstGroup
Is FirstGroup still cheap?
Great news for investors – FirstGroup is still trading at a fairly cheap price. My valuation model shows that the intrinsic value for the stock is £1.60, but it is currently trading at UK£1.13 on the share market, meaning that there is still an opportunity to buy now. Although, there may be another chance to buy again in the future. This is because FirstGroup’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company's shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from FirstGroup?
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. 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. FirstGroup's earnings over the next few years are expected to increase by 22%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? Since FGP is currently undervalued, it may be a great time to increase your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.
Are you a potential investor? If you’ve been keeping an eye on FGP for a while, now might be the time to enter the stock. Its prosperous future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy FGP. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed buy.
So while earnings quality is important, it's equally important to consider the risks facing FirstGroup at this point in time. To that end, you should learn about the 2 warning signs we've spotted with FirstGroup (including 1 which makes us a bit uncomfortable).